Hey, NCAA Schools: Spend Wisely

A recent antitrust lawsuit filed by the US Department of Justice aims to put more money into the pockets of college athletics departments across the country.  Now, as college athletics sits on the brink of major change, it’s up to the schools to spend this new money wisely.

It is no secret that the advent of “big-time” college sports in the past thirty years is directly related to the multimedia revenue the NCAA and its member institutions reap the benefits of.  Last March, the NCAA reported over $1 billion in revenues for the 2017 fiscal year, which stem in large part from the revenues the organization earns from its multi-billion-dollar television contracts with Turner Broadcasting and ESPN, giving the companies the exclusive rights to televise March Madness and the College Football Playoff.  Yet, while the NCAA receives special treatment under federal antitrust law based on the United States Supreme Court’s 1984 decision in NCAA v. Board of Regents, the companies that partner with its schools to sell multimedia rights do not enjoy the same protection.

The NCAA Multimedia Rights Industry

Given the huge popularity of college sports in the United States, an entire industry dedicated to the management and sale of multimedia rights (MMR) of universities has emerged.  For those unfamiliar, in its simplest form, MMR consists of the full package of advertising and promotional rights associated with an athletics program.  Examples of MMR include both print and digital advertising, stadiums signs, game sponsorships, promotions, radio shows and their associated advertising, and the coveted television advertising slots.  Where smaller schools handle MMR themselves, most major athletics programs outsource their MMR management to specialized MMR firms in order to maximize brand development and revenue.  In exchange for a fee, these firms seek to effectively commercialize an athletics department’s media rights by maximizing exposure across all advertising platforms.

In December of 2018, the two biggest companies in NCAA MMR, Learfield and IMG College, merged into one organization.  In a press release announcing the merger, company President and CEO Greg Brown stated: ”[w]ith the highly talented, trusted, and well-known teams from both Learfield and IMG College now joining forces, and by investing in our business and maintaining our cultural focus on earning the trust of our customers and clients, we are now better equipped than ever to achieve that goal.”

U.S. v. Learfield, IMG, and A-L Tier I

It is now clear, however, that Learfield and IMG had “joined forces” well before their merger.  On Thursday, the antitrust division of the United States Department of Justice filed a complaint in federal court against the newly named Learfield IMG College, alleging a violation of Section I of the Sherman Antitrust Act.  According to the complaint, “Defendants’ agreements and attempted agreements not to compete, and to co-opt smaller competitors, reflect a culture of disregard for the antitrust laws and the competitive process.  Accordingly, such conduct should be enjoined.”

Before the merger, IMG and Learfield tactically employed joint-ventures, non-competition agreements (both with themselves and other smaller market players), and under the table legal settlements with competitors that operated to deprive schools of receiving their maximum MMR value.  The complaint, which can be read in full here, offers a number of examples of the companies’ collusion, including the following:

“In one such episode, IMG and Learfield provided MMR services through a joint venture that had been created years before. When the university’s multimedia rights came up for bid, both IMG and Learfield initially prepared to submit independent bids in competition with each other. Before submissions were made to the school, however, executives of IMG and Learfield agreed not to submit competing bids and instead submitted a joint bid. Absent the competing independent offers anticipated from both IMG and Learfield, the school accepted a joint bid that offered less revenue to the school than at least one of Defendants’ planned independent bids.”

This conduct, by its definition, is collusion.  It is an illegal horizontal restraint on trade between competitors in a specific industry, and thus prohibited under Section I of the Sherman Antitrust Act.

What’s better–the parties knew it.

Filed the same day as the complaint was a stipulated order, signed by both parties, in which they agreed to cease from all anticompetitive conduct going forward.  In particular, the Section IV of the proposed order forbids Learfield IMG from “directly or indirectly, communicating competitively sensitive information related to bidding with any MMR competitor, [and] agreeing with an MMR competitor not to bid, or to bid jointly, on an MMR contract, including invitations or suggestions to bid jointly.”  In addition, Learfield IMG must seek approval from the Department of Justice for any future MMR joint venture, and is prohibited from renewing or extending any current joint ventures it enjoys.

Overall, the complaint and proposed order seek to eliminate all collusive conduct from the industry so NCAA institutions who employ outside MMR firms can reap the maximum benefit of their branding.

What does the settlement mean for the schools? 

By eliminating collusion from the MMR market, in theory, schools should be able to increase their advertising revenue.  MMR firms should now be competing with one another to offer schools the best marketing package possible at the lowest possible price, thus maximizing the school’s brand and revenue from the brand.

The issue, however, is who will receive this revenue and how it will be used.

As previously noted, the schools who rely on MMR firms are the NCAA’s “haves”.  They are the major universities whose teams play primetime games and reap the benefits of primetime advertising spots.  They are the schools already making money hand over fist, already building state-of-the-art facilities, and already offering assistant coaches multi-million-dollar contracts.  Translation–the rich are only getting richer.

At the same time, the elimination of previous collusion in the market may open the door for smaller schools trying to further develop their brand in today’s NCAA to seek out an MMR firm to better maximize their media image.  A perfect candidate is a small school like Davidson College.  Davidson dominated the Southern Conference in basketball for years first under Lefty Drisell, and now under Hall of Fame coach Bob McKillop, but has largely enjoyed only regional popularity due to its small alumni base. Recently, however, Davidson has enjoyed a major publicity boost from the rise of alum Stephen Curry in the NBA, its affiliation with Under Armour, and its shift from the Southern Conference to the Atlantic 10.  Athletics Director Chris Clunie has stated a commitment to winning since taking over his position this year. A partnership with a top MMR firm could increase the school’s publicity and help Davidson increase funding for its revenue generators to help its basketball programs be perennial March Madness competitors, which helps fund its non-revenue sports teams, facilities improvements, and academic support for student-athletes.

Looking forward, schools need to spend wisely.

While there will always be an arms race between universities generating major revenues to build the most state-of-the-art facilities and make big splash coaching hires, it is also time for schools to look to the future.  With In re: NCAA Grant in Aid Cap Antitrust LItigation v. NCAA Compensation pending a decision from Judge Wilken, it is more likely than not that schools will no longer be restrained under antitrust law from paying players.  While the decision will likely be appealed to the Ninth Circuit, and appealed again to the United States Supreme Court, if the O’Bannon case is any indication of the decision to come, student-athletes will be paid, and/or the NCAA is set to face major changes.

Accordingly, NCAA institutions, big or small, must consider what their potential branding will be in the years to come.  Change is coming; so are even bigger revenues–the question remains however, what these schools plan to do.  Where today’s head and assistant coaching salaries are well into the multi-million dollar range for schools at the top of the rankings in football and basketball, the expense of affording tomorrow’s NCAA, including potential player salaries, must give institutions pause to consider their budgets.  While seven-figure salaries for “college” athletes are unlikely, player salaries must still be budgeted for, or at least increased benefits for student-athletes.

For as much money as players currently generate for their institutions, the institutions should at least consider investing new resources in their players by increasing academic support dollars, focusing on post-eligibility career counseling, or strengthening alumni networks.  Why not take Judge Wilken’s suggestion from O’Bannon and set aside money in trust for players, especially football players with potential concussion issues?  Ultimately, schools must understand that student-athletes drive their athletics business models, and the days of shielding them from compensation under the farce of the NCAA’s amateurism model are coming to an abrupt end.  Why not get out in front of the change for once?

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