Justice Department Examines NCAA Scholarship Rules

May 06, 2010

In a rare show of interest in college sports, the U.S. Department of Justice is examining the rules that determine how colleges award athletics scholarships.

Lawyers from the department's antitrust division recently met with officials from the National Collegiate Athletic Association to discuss the association's rules governing athletics scholarships, according to an e-mail message from the NCAA obtained by The Chronicle. The department appears to be looking at the limitations the NCAA places on scholarships. Currently, an institution is allowed to give an athletics scholarship for only one year at a time—a rule that has been on the books since 1973­—and the scholarship may be renewed for no more than five years in all.

The message from Elsa Cole, the NCAA's general counsel, was sent this week to Division I athletic directors and conference commissioners, among others. Lawyers from the Justice Department, Ms. Cole said in the message, are now beginning to contact the general counsels of Division I colleges, as well as conference commissioners, to discuss "the purpose and effect of those rules."

A spokeswoman for the Justice Department said she could not comment on the matter.

The precise nature of the discussion between the association and the lawyers is not clear. Bob Williams, a spokesman for the NCAA, said in an e-mail message to The Chronicle that the association was working with the federal agency "to help it understand that athletics financial aid is a 'merit' award." He said the NCAA would emphasize to the department that athletes must remain academically eligible and meet certain expectations to retain their scholarships, making annual reviews "appropriate."

The debate over whether financial aid for athletes should be renewable annually or represent a four-year commitment has never fully abated in the 37 years that the one-year rule has existed. Some athletes say the annual renewal leaves them vulnerable in cases of injury or misunderstandings with a coach, while many athletic directors and coaches say it is a necessary and logical practice.

Yet while the sensitivity might be familiar, the antitrust angle is not—and could have a significant impact on college sports, legal experts said.

"If the Justice Department takes the position that rules most people think are designed to protect amateurism or academics are somehow subject to antitrust risk ... that's opening the door" to legal challenges, said Gary R. Roberts, dean of the Indiana University School of Law at Indianapolis.

A Legal Precedent

College sports is no stranger to attention from Washington. In the past year, President Obama has said he would favor a college football playoff, Secretary of Education Arne Duncan has criticized programs that fail to graduate their athletes, and last month, Vice President Joe Biden said the administration would work hard to strengthen gender-equity policies.

The NCAA has also faced its share of scrutiny. The association's rules have been the target of legal action on many occasions, and in recent years, some members of Congress have challenged its federal tax-exempt status.

In this case, it's not clear what prompted the Justice Department to take an interest in scholarship rules, or what the outcome might be. Several athletic directors and one conference commissioner confirmed on Thursday that they had received the NCAA's message but were not certain of the scope or significance of the inquiry.

"I'm not surprised by [the inquiry]," said Gregory Christopher, athletic director at Bowling Green State University. "The entire concept of grant-in-aid has been talked about before. It's a not a new conversation."

Michael McCann, a professor at Vermont Law School who specializes in sports law, said several outcomes were possible: The Department could recommend that the NCAA change its rules governing scholarships. It could sue the association, which he said is unlikely. Or it could do nothing at all.

Mr. Roberts, of Indiana, said many of the NCAA's bylaws, not just those governing scholarships, are meant to create parity among athletics programs. But they are rules that, in any other context, could be seen as overly restrictive and possibly in violation of antitrust law, he said.

Over the years, court rulings have established a legal precedent that favors the NCAA in challenges of rules meant to protect amateurism or academic requirements. But in matters that are commercial in nature—capping coaches' salaries, for instance—courts have been less sympathetic. In those antitrust cases, courts have ruled that the NCAA does not have the authority to regulate its members so strictly.

In 1991, the NCAA's member institutions, in an attempt to contain spiraling costs, adopted a rule putting strict limits on the salaries of certain assistant coaches. A group of coaches later sued the NCAA, claiming the rule violated antitrust law, and in May 1998, a federal jury awarded $22.3-million in damages to the coaches—an amount that, under antitrust principles, was tripled to $67-million.

More recently, in 2008, the NCAA settled a case brought by a group of former Division I football and basketball players who challenged the NCAA's cap on scholarships. Under the settlement, the association agreed to reallocate up to $228-million over five years to help more than 150,000 Division I athletes in all sports pay for basic expenses not covered by their athletics scholarships.

The current scrutiny of scholarship rules could blur what has become a bright line, legally speaking, between legislating the amateur side of college sports and controlling the business side of it, Mr. Roberts said.

"There's a lot of history and a lot of precedent to suggest that these kinds of rules ... that are designed to protect amateurism and academic standards are lawful," Mr. Roberts said. "But that's not carved in stone."