Northwestern ruling sends clear message: NCAA, it's time to negotiate

Thursday March 27th, 2014

Kain Colter and his fellow Northwestern players were determined by the NLRB to be school employees.
David Banks/Getty Images

Donald Remy was disappointed on Wednesday. This has become somewhat of a theme for the NCAA's chief legal counsel. In fact, if the fictional Soggy Bottom Boys are stumped for their next hit, they should consider writing "Man of Constant Disappointment" and dedicate it to Remy.

In November, Remy was disappointed that a federal judge in California certified a class of current athletes seeking compensation for the use of their names and likenesses for the extremely popular football and basketball television offerings sold by major college athletic conferences. This case was brought by former UCLA basketball player Ed O'Bannon, but the far more important plaintiffs are the current athletes who joined the suit last year. In February, Remy was disappointed that the judge moved that case one step closer to trial. On Wednesday, the boulder barreling toward the NCAA accelerated so fast that Remy found himself disappointed by a ruling in a case in which his organization has no direct involvement. A National Labor Relations Board official ruled that Northwestern football players aren't "student-athletes," but employees of the university whose efforts generate a considerable sum of money.

Wednesday's ruling likely will have zero immediate effect. Northwestern can appeal, and the ruling only affects players at private schools because the NLRB has no power over state-run institutions. Still, the ruling should serve as the tipping point for the NCAA and the leaders of the schools in the five wealthiest conferences to realize it's time to stop fighting and start bargaining. If the people in charge of college sports don't want to see the system they've created come crashing down in a courtroom or a bureaucrat's office or in the halls of Congress, it's time to invite the athletes to the table -- unionized or not -- and hammer out a deal with which everyone can live. If not, their disappointment will only continue.

"The NCAA is disappointed," Remy said in a statement that could have been cut-and-pasted from statements of disappointments past, "that the NLRB Region 13 determined the Northwestern football team may vote to be considered university employees. We strongly disagree with the notion that student-athletes are employees."

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The person who thinks major college football players -- who can typically lose their compensation (scholarship) if they fail to take part in "voluntary" offseason workouts -- are employees is Peter Sung Ohr, the regional director of the Chicago office of the National Labor Relations Board. In a ruling issued Wednesday, Ohr wrote this: "Clearly, the Employer's players perform valuable services for their Employer. Monetarily, the Employer's football program generated revenues of approximately $235 million during the nine year period 2003-2012 through its participation in the NCAA Division I and Big Ten Conference that were generated through ticket sales, television contracts, merchandise sales and licensing agreements. The Employer was able to utilize this economic benefit provided by the services of its football team in any manner it chose."

Ohr ordered an election during which Northwestern players will vote by secret ballot to decide whether they wish to unionize. They may choose not to do that, which would help the NCAA and the schools maintain the business model they've built and fiercely protected. Northwestern could win its forthcoming appeal to the NLRB, which also would help. This case probably won't get resolved before it reaches the Supreme Court or Congress, so nothing drastic will happen immediately.

The O'Bannon case is slated to start this summer, and any judgment there will be appealed to the hilt. It won't be resolved for years, but it also could smash the business model for major college athletics to pieces. Earlier this month, sports labor specialist Jeffrey Kessler announced he would form a class of athletes to sue the NCAA and the ACC, Big Ten, Big 12, Pac-12 and SEC on antitrust grounds. Kessler isn't seeking specific damages. He simply wants to blow up the system and start over with a free-market one.

One or all of these challenges will ultimately succeed because the people in charge of college sports didn't heed the old saw about what happens to pigs and what happens to hogs. The conference commissioners, athletic directors, coaches, and NCAA officials have had a great run of about 15 years in which their revenues have soared while their labor costs remained mostly flat. A lot of that money went into their pockets. And bless the $4 million football coach or the $1 million athletic director. They were only being good capitalists. It's great that Ohio State athletic director Gene Smith negotiated a contract on the open market that pays him a $940,484 base salary and includes bonuses such as the $18,447.94 he'll receive because Buckeyes wrestler Logan Steiber won the NCAA title in the 141-pound class this past weekend. It kind of stinks that Steiber doesn't get a penny extra even though he threw some significant scratch in his AD's pocket.

If Smith makes $150,000 a year and gets no bonus, no one holds him up as an example. The difference is the money, and not many of these folks have turned it down. But if they believed they could be millionaire CEOs without dealing with some of the same labor issues other millionaire CEOs deal with, they were kidding themselves.

Back in the 1950s, when former NCAA director Walter Byers coined the term "student-athlete" in order to help schools dodge worker's compensation claims, there was little money in the system. Lawyers could have attacked but would have found only a few drops of blood in the stone. In his 1997 book Unsportsmanlike Conduct, Byers described a case in Colorado in which the state supreme court overturned a death benefit awarded to the widow of Fort Lewis A&M player Ray Dennison, who died of a head injury suffered playing football. Unlike today's players, whose tuition, room and board are covered by their schools, Dennison was given a job to cover his room and board. "... the Supreme Court reversed the Industrial Commission's award of death benefits to the widow because, it said, there was no evidence of a contract for hire or that his employment by the university would have changed had he quit football," Byers wrote. "Particularly significant was the court's argument that the college received no benefit from Dennison's activities, 'since the college was not in the football business and received no benefit from this field of recreation.'"

That was probably true of that school in the 1950s or a Division III school now. But at the top of the college sports food chain, schools are very much in the business of football and men's basketball. Only a fool would argue that Texas A&M received no benefit from the exploits of Johnny Manziel. In fact, the schools of the Big Ten and the Pac-12 are so deep in the business of football and men's basketball that they partner in (Big Ten) or run (Pac-12) their own cable television networks. In August, the schools of SEC -- in partnership with ESPN -- will join them when their own network launches. School presidents and athletic directors chose to turn college sports into a multibillion-dollar business. In fact, they sued the NCAA for the right to do it. This made some coaches, ADs and conference commissioners quite rich, and they pocketed a lot of that money before some enterprising attorneys began hinting to the labor force that it should ask for a bigger slice of the pie. Those attorneys didn't do this out of the goodness of their hearts, of course. The ones who will ultimately win this game are the lawyers.

Now, the schools -- which, let's face it, are the NCAA -- must choose. Do they make a deal with the athletes? Or do they risk any or all of the following?

• An ultimately unfavorable ruling in the O'Bannon case that would essentially make it illegal to televise a college football game without explicitly compensating the participants.

• An ultimately unfavorable NLRB ruling that would recognize players as employees. That would require schools to sink money into worker's compensation, but it also could have a much bigger impact. If football players are employees, then the schools are employers. From a legal standpoint, they would be very much in the football business. The football business is not part of a school's educational mission, and someone in Congress might look at all those cable-network dollars and decide it's time schools started paying taxes on that revenue.

• An ultimately unfavorable ruling in the case Kessler is bringing, which essentially would declare the entire business model for major college sports illegal.

The schools and NCAA could fight these cases, but there will only be more. The lawyers smell money, and they aren't going away until they get it. The players are compensated with tuition, room and board, but they haven't gotten a raise since the 1950s. Now, they're the stars of a wildly popular series of television shows. In a courtroom, outside the insular system that is college athletics, the NCAA's arguments sound ludicrous. In February, an attorney representing the NCAA tried to claim that television broadcasts are protected by the first amendment. You could test his claim by bringing a camera and streaming the Michigan-Ohio State game on the Internet, but ESPN -- which pays several million dollars to televise the game -- and the Big Ten would put the lie to it by burying you in cease-and-desist letters that threaten very costly legal action.

Unfortunately for the NCAA, that is its cornerstone argument in the O'Bannon case. Meanwhile, Northwestern faces an uphill climb on appeal. Graduation rates mean nothing to the NLRB. Neither does the argument that players get an exceptional educational opportunity. What matters is whether there is an exchange of compensation that provides a financial benefit to the employer. "This is not even close," said Ramogi Huma, the college sports reformer who helped the Northwestern players form the College Athletes Players Association. "It's not even a gray area. They lost every argument they made."

So what should the schools and NCAA do? Do they fight until the bitter end and watch their system get demolished? Or do they do what they should have done years ago and collectively bargain with the athletes? At this point, Huma's group isn't asking for players to receive a salary. "The parties at the table that matter are the NCAA, the schools and us," Huma said. "And none of us are talking about salaries."

The CAPA wants schools to be allowed to pay the full cost of attendance if they can afford it. The current NCAA-mandated "full ride" comes up a few thousand dollars short at most schools. The wealthy conferences and NCAA president Mark Emmert have tried to push through stipends only to be blocked by less wealthy conferences. The CAPA wants players to receive lifetime medical care for injuries sustained playing for a school. The CAPA would like to see some money placed in trust that players could access only after they receive their degrees.

Huma laughed at the argument that players wouldn't want to unionize because they might be taxed on their current compensation. "They're already taxed on room and board," he said. Huma is confident the IRS would not tax the tuition portion of the scholarship. That could be tricky if the players prevail. According to the IRS, the tuition portion of athletic scholarships are not taxable. (Though a look at the necessary worksheet suggests that if athletes are considered employees, the IRS might consider their situations differently.)

No one on the CAPA or the O'Bannon plaintiffs' side will talk hard numbers -- why would they? -- but the leaders of college sports probably could negotiate a package that would stop all this. A settlement would keep the coaches and ADs rich. It would allow schools to keep subsidizing non-revenue sports and providing free educations for athletes other than football and men's basketball players. (Also known as the ones who bring in all the money.) Meanwhile, the players would get a little more -- but not so much that things change too dramatically. Amateurism can be whatever the schools say it is. All they have to do is change the rules to allow the schools that run their sports like a business to compensate their employees a little better. Here's a package that might work. If it looks familiar, it's based on the same Sports Business Journal model I cited back in December:

• Schools are allowed to provide tuition, room and board up to the cost-of-attendance figure that they report to the U.S. Department of Education.

• Schools may provide lifetime disability coverage for athletes injured while playing for the school.

• Schools must continue paying the tuition, room and board of an athlete who suffers a career-ending injury until that athlete's eligibility expires.

• Schools may provide up to $17,500 a year per head-count scholarship to be placed in trust and collected upon the athlete's graduation. This must apply to all scholarship athletes, because violating Title IX would put a school's federal funding in jeopardy.

• Allow players to profit from their likeness, either from direct payments or payments placed in trust. The schools probably wouldn't go for my preferred plan, but they need to come up with a way for star players to realize at least some of their market value.

That probably isn't a fair deal for the Johnny Footballs of the world, but there is a reason the Miami Heat don't have to pay market value for LeBron James. It would be a collectively bargained arrangement, and it might be the only way major college athletics doesn't get sued into oblivion.

Back in the ivory tower, Remy remains disappointed. "We frequently hear from student-athletes, across all sports, that they participate to enhance their overall college experience and for the love of their sport, not to be paid," Remy said in his statement. Unfortunately for Remy and his ilk, those student-athletes they keep hearing from probably aren't labor relations officials or federal judges. And if the leaders of college sports don't learn to compromise soon, those will be the only opinions that will matter on this topic.

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