Braxston L. Banks v. National Collegiate Athletic Association

FLAUM, Circuit Judge,

concurring in part and dissenting in part.

This is a “rule of reason” case brought under § 1 of the Sherman Antitrust Act, National Collegiate Athletic Ass’n v. Board of Regents, 468 U.S. 85, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984), and as such the panel correctly states that Braxton Banks must allege that the NCAA rules at issue harm competition in some relevant market to get his foot in the door. Great Escape, Inc. v. Union City Body Co., Inc., 791 F.2d 532, 539 (7th Cir.1986); Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106-07 (7th Cir.1984), cert. denied, 470 U.S. 1054, 105 S.Ct. 1758, 84 L.Ed.2d 821 (1985). After quoting liberally from Banks’ complaint, the panel concludes that he failed to meet his burden. Granted, the complaint was drafted somewhat inelegantly, but I nonetheless believe that it defines a market and describes how the NCAA rules harm competition in that market. Accordingly, I respectfully dissent from the panel’s affir-mance of the district court’s dismissal of Banks’ second cause of action.^*

The parties agree that Banks, to survive the NCAA’s motion to dismiss, must define a relevant market and allege how the challenged rules adversely affect competition in that market. Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 268 (7th Cir.1981), cert. denied, 455 U.S. 921, 102 S.Ct. 1277, 71 L.Ed.2d 461 (1982). As the NCAA concedes, Banks defined two markets in his complaint, only one of which it is necessary to address here: the nationwide labor market for college football players. See Amended Complaint ¶ 22(a)-(b). NCAA member colleges are the purchasers of labor in this market, and the players are the suppliers. The players agree to compete in football games sponsored by the colleges, games that typically garner the colleges a profit, in exchange for tuition, room, board and other benefits.

Banks also alleges how the NCAA rules at issue — I will focus upon the no-draft rule — harm competition in that market: they foreclose players “from choosing a major college football team based on the willingness of the institution to waive or change [the] rule[].” Id. ¶ 22(b). It is hardly a revelation that colleges fiercely compete for the most promising high school football players — the players who, incidentally, are most likely to feel constrained by the challenged rules two or three years down the line. If the no-draft rule were scuttled, colleges that promised their athletes the opportunity to test the waters in the NFL draft before their eligibility expired, and return if things didn’t work out, would be more attractive to athletes than colleges that declined to offer the same opportunity. The no-draft rule eliminates this potential element of competition among colleges, the purchasers of labor in the college football labor market. It categorically rules out a term of employment that players, the suppliers of labor in that market, would find advantageous. Cf. FTC v. Indiana Fed’n of Dentists, 476 U.S. 447, 459, 106 S.Ct. 2009, 2018, 90 L.Ed.2d 445 (1986) (considering “a horizontal agreement among ... dentists to withhold from their customers a particular service that they desire”).

It is well settled that an agreement among employers to control a material term of employment harms competition in the labor market at issue. Radovich v. National Football League, 352 U.S. 445, 77 S.Ct. 390, 1 L.Ed.2d 456 (1957); Nichols v. Spencer Int’l Press, Inc., 371 F.2d 332, 335-36 (7th Cir.1967); Phillip Areeda and Donald F. Turner, II Antitrust Law ¶ 338c, at 199-200 (1978); Annotation, Validity, Under the Federal Antitrust Laws (15 USC §§ 1 et seq.) of Agreements Between Employers or Employer Associations Imposing Restrictions on Employment, 2 A.L.R. Fed. 839 (1969 and 1991 Supp.) (citing cases); cf. Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1338 (7th Cir.1986) (conspiracy among buyers to depress prices harmful to competition). It should come as no surprise that the no-draft rule operates to the detriment of the players, and that colleges benefit from the fact that their athletes feel tied to the institution for four years. Consider, for example, athletes who are known in the vernacular as “bubble” players. These athletes are excellent competitors at the collegiate level, but for various reasons are considered less than certain NFL prospects. Bubble players who wish to market their wares in the professional market after their sophomore or junior year will fore-go entry into the NFL draft because, if they are not selected (or fail to join a team after being selected), the rule will prevent them from returning to college to hone their skills and try again in subsequent years. See Note, Sherman Act Invalidation of the NCAA Amateurism Rules, 105 Harv.L.Rev. 1299, 1311 (1992). The rule permits colleges to squeeze out of their players one or two more years of service, years the colleges might have lost had the ability to enter the draft without consequence to eligibility been the subject of bargaining between athletes and colleges. See Rhoden, Smoke, Mirrors and Doubletalk From the N.C.A.A., N.Y. Times, Jan. 11, 1992, at 29. The rule thereby distorts the “price” of labor in the college football labor market to the detriment of players.

The NCAA disputes this characterization, maintaining that the no-draft rule is not “anticompetitive” as the term is employed under the Sherman Act. At the heart of its argument is the contention that “there is no price competition as such among colleges for players because the ‘price,’ the value of grant-in-aid, is determined by the school’s tuition, room, and board, not by the supply of and demand for players.” Def.’s Br. at 20. This analysis of the college football labor market is partially correct; in that market, players exchange their labor for in-kind benefits, not cash. At least ideally. But see Johnson, Defense Against the NCAA, U.S. News & World Rep., Jan. 13, 1992, at 25 (improper cash payments made to football players at Auburn University); Johnson, Playing for Pay in Texas, Newsweek, Mar. 16, 1987, at 32 (same at Southern Methodist University).

It is unrealistic, however, to suggest that the value of those in-kind benefits is limited solely to tuition, room and board. If this were true, the best football players would attend the most expensive private universities that would admit them, for these universities would offer, under the NCAA’s analysis, the most “valuable” compensation for their services. Assuming some regional loyalties, private colleges such as Syracuse University, the University of Southern California, and Notre Dame would consistently outrecruit public colleges such as Penn State, UCLA and the University of Michigan. As anyone familiar with college football well knows, this is not the case. The reason is simple. Athletes look to more than tuition, room and board when determining which college has offered them the most attractive package of in-kind benefits. Some athletes look primarily to the reputation of a particular program or coach as a “feeder” into the NFL; others believe that the quality of a university’s academic program and the commitment of the coaching staff to scholarly pursuits is more important. Some athletes look to whether a college will offer them a cushy, high-paying job during the summer or school year; others might be attracted by state-of-the-art training facilities. And some athletes, if given the chance, would look to whether a college would allow them to enter the NFL draft and return if they did not join a professional team.

All of these things — with the exception of .the last item — are “terms of employment” that currently sweeten the pot for athletes choosing among college football programs. They provide, apart from tuition, room and board, the means by which colleges, as purchasers of labor, attract and compensate their players, the suppliers of labor. That the medium of exchange is non-monetary does not alter the fact that these benefits constitute the “price” of labor in the college football market, or that the categorical elimination of one of those benefits harms competition in that market. The NCAA’s protestations notwithstanding, there can be no doubt that Banks has alleged an anticompetitive effect in a relevant market.

A couple of other matters regarding the confusing and often confused issue of “antitrust injury” warrant brief attention. The panel, as well as the district court, alludes to Banks’ supposed failure to allege that the NCAA rules have caused him to suffer antitrust injury. See Op. at 1087; Banks II, slip op. at 11. I respectfully suggest that Banks has satisfied this burden. Section 4 of the Clayton Act requires private plaintiffs seeking relief under the antitrust laws to demonstrate antitrust injury, Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977); Local Beauty Supply, Inc. v. Lamaur, Inc., 787 F.2d 1197, 1200-02 (7th Cir.1986), something necessary, though not sufficient, to establish antitrust standing. Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 110 n. 5, 107 S.Ct. 484, 489 n. 5, 93 L.Ed.2d 427 (1986); Southwest Suburban Bd. of Realtors, Inc. v. Beverly Area Planning Ass’n, 830 F.2d 1374, 1377 (7th Cir.1987). Banks cannot clear this threshold merely by showing that his injury is causally linked to the NCAA’s alleged antitrust violation. Rather, he must also show that his injury is “of the type the antitrust laws were intended to prevent and that flows from that which makes [the NCAA rules] unlawful,” Brunswick, 429 U.S. at 489, 97 S.Ct. at 697, or, put another way, that his injury is attributable to the allegedly anti-competitive aspect of those rules. Cargill, 479 U.S. at 109-110, 107 S.Ct. at 488-89. The requirement, in short, compels him “to connect the injury claimed to the purposes of the antitrust laws.” Areeda and Turner, VIII Antitrust Law, supra, ¶ 1640c, at 444.

Banks easily clears this threshold. The no-draft rule, as noted, is anticompetitive because it constitutes an agreement among colleges to eliminate an element of competition in the college football labor market. The purposes of the antitrust laws are served when employers are prevented from tampering with the employment market in this precise way. “Just as antitrust law seeks to preserve the free market opportunities of buyers and sellers of goods, so also it seeks to do the same for buyers and sellers of employment services_” Areeda and Turner, II Id. ¶ 338c, at 199-200; see also Quinonez v. National Ass’n of Sec. Dealers, Inc., 540 F.2d 824, 828 (5th Cir.1976). Banks’ injury — namely, the revocation of his eligibility and consequent loss of his athletic scholarship during his final year at Notre Dame — “flows from” the precise anticompetitive aspects of the NCAA rules that he set out in his complaint.

Our discussion of antitrust injury in Bichan v. Chemetron Corp. (In re Industrial Gas Antitrust Litigation), 681 F.2d 514 (7th Cir.1982), cert. denied, 460 U.S. 1016, 103 S.Ct. 1261, 75 L.Ed.2d 487 (1983), confirms this conclusion. There, an executive terminated by a corporation charged that the corporation had participated in a horizontal conspiracy to fix prices, and that he had been fired and blacklisted for refusing to adhere to the conspiracy. We held that the executive had failed to demonstrate antitrust injury because the harm inflicted upon him by the corporation was not “inextricably related to, and caused by” the anti-competitive effect of the alleged price fixing activities in the product market. Id. at 515. In so holding, we distinguished Radovick v. National Football League, supra, and Nichols v. Spencer Int’l Press, Inc., supra. Both of those cases, like Bichan, involved antitrust suits brought by employees against their employers, but, unlike Bichan both considered alleged Sherman Act violations involving anticompetitive activities among employers in the labor market, not the product market. It follows, we observed, that the plaintiffs in Nichols and Radovich had demonstrated antitrust injury because “the conspiracies in both cases were intended to restrict competitive conditions in the labor market, [and] the injuries complained of, restriction of employment alternatives, were directly related to the anticompetitive restraints.” Bichan, 681 F.2d at 517. Banks’ complaint, which alleges restrictive competitive conditions in the relevant labor market, falls squarely within the rubric of Nichols and Radovich. See generally Frederick Woodbridge, Jr., Employee Standing in Private Antitrust Suits: A New Element in the Balance, 51 U.Cin.L.Rev. 878 (1982).

The NCAA also raises the issue of harm to consumers; it contends that Banks’ complaint is deficient because it does not “reasonably support the inference that consumers are harmed by the operation of the no-draft and no-agent rules.” Def.’s Br. at 23. Whether harm to consumers is the sine qua non of antitrust injury is an issue over which there is currently a split in this circuit. Some of our cases hold that a plaintiff, to satisfy the antitrust injury requirement, must demonstrate that the challenged practice causing him harm also harms consumers by reducing output or raising prices. Stamatakis Indus., Inc. v. King, 965 F.2d 469, 471 (7th Cir.1992); Chicago Professional Sports Ltd. Partnership v. National Basketball Ass’n, 961 F.2d 667, 670 (7th Cir.1992). Others hold that application of the antitrust laws “does not depend in each particular case upon the ultimate demonstrable consumer effect.” Fishman v. Estate of Wirtz, 807 F.2d 520, 536 (7th Cir.1986); see also Chicago Professional Sports, 961 F.2d at 677 (Cudahy, J., concurring).

One can dispense with the NCAA’s contention without choosing sides in this dispute. To see why, it is important first to identify the consumers and the market at issue in this case. By “consumers,” the NCAA apparently means people who watch college football. These individuals certainly are consumers in the college football product market, but the market at issue here is the college football labor market, and the NCAA member colleges are consumers in that market. It would be coun-terintuitive to require Banks to demonstrate that the no-draft and no-agent rules harm the colleges, the very entities that established those rules. I doubt very strongly that the rule laid out in Chicago Professional Sports, to the extent it is valid elsewhere, was intended to apply in this context. Concerted action among consumers that lowers prices harms competition as much as concerted action among producers that raises prices. The distinction should be irrelevant to any discussion of antitrust injury. See Ball Memorial Hosp., 784 F.2d at 1338. Professors Aree-da and Turner, when discussing the right of laborers to challenge antitrust violations in the labor market, put things nicely:

It would be perverse ... to hold that the very object of the law’s solicitude and the persons most directly concerned — perhaps the only persons concerned — could not challenge the restraint.... The standing of such plaintiffs is undoubted and seldom challenged.

Areeda & Turner, II Antitrust Law, supra, ¶ 338c, at 200; see also Phillip Areeda & Louis Kaplow, Antitrust Analysis 11148(c), at 90 (4th ed. 1988). Banks has alleged that the NCAA rules harm competition to the detriment of producers in the college football labor market, and that his injuries are directly related to that harm. This is sufficient to establish “antitrust injury” in this context. See Bichan, 681 F.2d at 517 (discussing Radovich and Nichols).

I add here a caveat to avert any potential misunderstandings. My point is only that Banks has properly alleged an anticompeti-tive effect in a relevant market and has demonstrated antitrust injury, and hence that his damages action should survive the NCAA’s motion to dismiss. But this is, of course, only the first step. To ultimately prevail, Banks also must demonstrate, under the rule of reason, that the no-agent and no-draft rules, despite their anticom-petitive effects, are not “justifiable means of fostering competition among amateur athletic teams and therefore procompeti-tive” on the whole. Board of Regents, 468 U.S. at 117, 104 S.Ct. at 2969. It may very well be that the no-draft and no-agent rules are essential to the survival of college football as a distinct and viable product, in which ease Banks would lose. A lively debate has arisen among those who have already considered this matter. Compare Gaines v. National Collegiate Athletic Ass’n, 746 F.Supp. 738, 746-47 (M.D.Tenn. 1990) (NCAA rules survive rule of reason analysis) and Banks I, 746 F.Supp. at 860-62 (same) with Note, NCAA Amateurism Rules, supra, at 1309-12 (would find NCAA rules invalid under rule of reason). I opt not to join the fray here, for I think it unwise to weigh pro- and anticompetitive effects under the rule of reason on a motion to dismiss. See Wilk v. American Medical Ass’n, 895 F.2d 352, 358 (7th Cir.), cert. denied, 496 U.S. 927, 110 S.Ct. 2621, 110 L.Ed.2d 642 (1990) (rule of reason considers “agreements whose competitive effect can only be evaluated by analyzing the facts peculiar to the business involved, the particular restraint’s history, and the reasons it was imposed”).

Today’s decision, by holding that Banks has not alleged that the rules are anticom-petitive in the first instance, deprives him of the opportunity to join this issue on remand. As I have discussed, it is difficult to reconcile this holding with a sound reading of Banks’ complaint. On a broader level, I am also concerned that today’s decision — unintentionally, to be sure, for it suggests that a “more artfully drafted complaint” could have alleged an anticompeti-tive effect in this market — will provide comfort to the NCAA’s incredulous assertion that its eligibility rules are “noncommercial.” See Def.’s Br. at 20 n. 10. The NCAA would have us believe that intercollegiate athletic contests are about spirit, competition, camaraderie, sportsmanship, hard work (which they certainly are) ... and nothing else. See NCAA Constitution, art. 3, § 1 (1986) (student-athlete is one “who engages in a particular sport for the educational, physical, mental and social benefits he derives therefrom and to whom participation in that sport is an avocation”). Players play for the fun of it, colleges get a kick out of entertaining the student body and alumni, but the relationship between players and colleges is positively noncommercial. See Sharon Elizabeth Rush, Touchdowns, Toddlers, and Taboos: On Paying College Athletes and Surrogate Contract Mothers, 31 Ariz.L.Rev. 549, 576-77, 581-82, 587-88 (1989) (discussing images of intercollegiate sports); Arthur D. Austin, Book Review, 58 N.Car.L.Rev. 660, 663 (1980) (discussing contemporary myth which portrays student-athletes “as students, who, in the off hours away from dedication to the books, happen to participate in organized sports”). It is consoling to buy into these myths, for they remind us of a more innocent era — an era where recruiting scandals were virtually unknown, where amateurism was more a reality than an ideal, and where post-season bowl games were named for commodities, not corporations. See House: Don’t Tax Bowls’ Sponsors, Chi. Daily L. Bull., July 29, 1992, at 1 (House of Representatives votes to block Internal Revenue Service from taxing Mobil Cotton Bowl on the approximately $1.5 million a year it receives from Mobil). On the flip side, it is disquieting to think of college football as a business, of colleges as the purchasers of labor, and of athletes as the suppliers.

The NCAA continues to purvey, even in this case, an outmoded image of intercollegiate sports that no longer jibes with reality. The times have changed. College football is a terrific American institution that generates abundant nonpecuniary benefits for players and fans, but it is also a vast commercial venture that yields substantial profits for colleges, see, e.g., Board of Regents, 468 U.S. at 92-94, 104 S.Ct. at 2955-57; National Collegiate Athletic Association, Revenues and Expenses of Intercollegiate Athletic Programs 15 (1990) (estimating that sports revenues at Division IA schools exceeds one billion dollars per year); D. Devenzio, Rip Off U: The Annual Theft and Exploitation of Major College Revenue-Producing Athletes 106-08 (1986) (University of Michigan football program posted a $2 million profit in 1984); Arthur D. Austin, The Legality of Ticket Tie-Ins in Intercollegiate Athletics, 15 U.Rich.L.Rev. 1, 1 (1980), both on and off the field. See, e.g., Lee Goldman, Sports and Antitrust: Should College Students Be Paid to Play?, 65 Notre Dame L.Rev. 206, 206 (1990); Rush, Touchdowns, Toddlers, and Taboos, supra, at 553, 570; It Pays to Win ... Or to Lose, N.Y. Times, June 8, 1986, § 5, at 8 (during time Heisman Trophy winner Bo Jackson played football for Auburn University, annual applications increased from 4500 to 6200); Clark, The Business of Education: Does Athletics Help or Hurt?, Wall St.J., Aug. 26, 1985, at 25 (athletic success of Clemson University increased average amount of alumni donations). The games provide fans with entertaining contests to watch, and athletes with an opportunity to display and develop their strength, skills and character, but they are saleable products nonetheless. Board of Regents, supra. An athlete’s participation offers all of the rewards that attend vigorous competition in organized sport, but it is also labor, labor for which the athlete is recompensed. The no-draft and no-agent rules may, ultimately, pass muster under the rule of reason. But, putting the adequacy of Banks’ complaint to the side, contending that they have no commercial effect on competition in the college football labor market, or that there is no market of that type at all, is chimerical:

The true stake is this decades-long gentleman’s agreement between the NFL and the college powers-that-be that has kept all but a handful of football playing collegians from turning pro before their four-year use to their schools is exhausted. The pros get a free farm system that supplies them with well-trained, much publicized employees. The colleges get to keep their players the equivalent of barefoot and pregnant.

Klein, College Football: Keeping ’em Barefoot, Wall St.J., Sept. 4, 1987, at 15.

When confronted with the clash between soothing nostalgia and distressing reality, it is oftentimes difficult to resist the call of tennis champion Andre Agassi, who when hawking cameras off the court tells us that “image is everything.” But we must remember that Agassi’s domain, at least in this instance, is television. What may be true there is decidedly not under the lens of the antitrust laws. See National Soc’y of Professional Eng’rs v. United States, 435 U.S. 679, 696, 98 S.Ct. 1355, 1367, 55 L.Ed.2d 637 (1978); Goldfarb v. Virginia State Bar, 421 U.S. 773, 786-88, 95 S.Ct. 2004, 2012-14, 44 L.Ed.2d 572 (1975). Having found that Banks has cleared the threshold of alleging an anti-competitive effect in a relevant market, I would reverse the district court’s dismissal of his damages action and remand for further proceedings.

* At the outset of its analysis, the panel charges that, on appeal, Banks ”ignore[d]” the district court’s holding that he failed to allege an anti-competitive impact upon an identifiable market. See Op. at 1087. This charge, I suggest, is mistaken. The portion of Banks’ brief quoted by the panel refers to two rulings entered by the district court. The first denies Banks' motion for a preliminary injunction against the NCAA to restore his eligibility — he was declared ineligible pursuant to the no-draft and no-agent rules — to play football for Notre Dame during his final year there. Banks v. National Collegiate Athletic Ass’n, 746 F.Supp. 850 (N.D.Ind. 1990) ["Banks /”]. Banks did not appeal this ruling. Instead, he filed an amended complaint seeking a permanent injunction on behalf of a class of players (not including himself) against enforcement of the rules, and damages resulting from his ineligibility. The district court’s dismissal of the amended complaint, Banks v. National Collegiate Athletic Ass'n, No. § 90-394 (N.D.Ind. Feb. 20, 1991) [“Banks II"], is the second ruling, and the one at issue in this appeal. Banks' characterization in his brief of these two rulings is right on the money. Banks I found that he had "posited a credible anti-competitive effect” of the no-draft and no-agent rules, Banks I, 746 F.Supp. at 860, but nonetheless denied his motion for a preliminary injunction on the ground that the rules’ procompeti-tive effects outweighed any anticompetitive effects under the rule of reason. Id. at 860-62. Banks II (the "subsequent opinion” to which Banks refers in his brief) shifted gears by dismissing Banks' amended complaint on the ground that it did not allege any anticompetitive effects. Banks II, slip op. at 11. The court did not, however, really explain its change of heart. Contrary to the panel's contentions, Banks did assign error to the holding of Banks II. See PL’s Br. at 21-27 (contending that Banks has alleged anticompetitive effects). Any confusion arises from the fact that Banks was compelled to address the arguments presented in the NCAA’s brief below because Banks Ifs analysis of this issue was so thin.