Is BCS Violating Antitrust Laws? Yes, If It Actually Existed

Tuesday afternoon, the United States Senate Judiciary Committee held a hearing in the U.S. Capitol to examine whether or not the BCS violated antitrust laws. The question, essentially, was whether the BCS functions as a monopoly or a cartel and, if so, whether it violates the Sherman Antitrust Act.

Much of the coverage of Tuesday's hearing focused on the usual arguments for and against a college football playoff rather than actually looking at the question at issue in the hearing: Does the BCS as presently constituted violate United States antitrust laws?

It's a simple question with a complicated answer, but after reviewing the submitted documents, the testimony of those called before the committee, and applying my legal education that set me back almost $150k (that I'm still paying off), I'll give you an answer: Yes.

As a preliminary point, one of the best stories I've ever heard about the value of a legal education goes something like this. Someone takes the stage to speak to the graduating lawyers and begins, "Before you entered law school, if someone asked you a question about the law you could say with true sincerity, 'I have no idea.' Now, three years later, if someone asks you the same question, you can look them directly in the eye and say with great sincerity, 'That depends.'"

The story gets at the complexity of legal analysis and how opinions can govern our own perception of what's just. Even for lawyers, these can be difficult questions. That's why I think so many of the articles that came out of Tuesday's hearing focused on two main points of analysis, the tired arguments for and against a college football playoff and the rationale or lack thereof for Congressional analysis. This was summed up by ESPN radio host Colin Cowherd, "Let sports take care of sports," he eloquently argued.

I'll leave aside the first. I'm in favor of a playoff, but I don't think the hearing before the Senate Judiciary Committee lends itself to another rationale for making the same argument that could be made any day of any month of any year. Many just used it as an excuse to opine on a playoff once more as the dog days of summer reach us. That opinion didn't require any actual time. The second tack, that sports should be left alone by Congress, is more interesting. Because the only assumption that could justify the opinion is if sports aren't a business. Cowherd and his ilk wouldn't confront another monopoly by saying, "Let oil take care of oil," or "Let banks take care of banks."

At least I don't think they would.

By tossing off such lame asides that many listeners blankly nod in agreement with, the point of the hearings is lost, antitrust monopolies anywhere are a threat to American business everywhere. Unless, of course, they favor a government with no powers to regulate or examine commerce in any industry. Then, their argument is consistent.

The reality is sports is big business, and if a sports entity is guilty of violating the Sherman Act, Congress has every bit as much interest in reviewing their actions as they would to look at oil companies, banking entities or, for that matter, the movie industry. A violation of the antitrust act by any industry in America today is an assault upon the fabric of commerce. A congressional hearing can shine a spotlight on a situation and make the BCS squirm in a way that no one else can. Not even the President. If you're at all interested in this situation and don't feel like you've gotten an adequate understanding of the issues at hand from the media coverage, I'd encourage you to go to this link and read the written materials offered by all four men who testified. They're eye-opening no matter your perspective and cover the situation in much greater detail than the public hearing could ever manage.

To begin, it's worth knowing that any business that operates across state lines is subject to regulation under the Sherman Act. Given the scope of collegiate athletics, the law may be applied in two ways. To violate Section 1, it must be found that there's (a.) an agreement that (b.) unreasonably restrains commerce and (c.) it affects interstate commerce. Or, it may be a Section 2 violation, via (a.) the possession of monopoly power in the relevant market and (b.) the willful acquisition or maintenance of that power. In particular, the BCS would be examined using a rule of reason analysis. I believe that a thorough and impartial examiner would find the BCS to be a monopoly or cartel exercising it's power to restrain trade (i.e. games).

There are millions of words written about antitrust in law review articles. Virtually all of those articles are boring. Even to lawyers billing their clients $400 an hour while they claim to be reading them and are actually following Wimbledon on their computer. So, instead of a detailed legal analysis, here are the six key takeaways from the hearings that no one seems to be talking about:

1. The BCS doesn't exist! I don't know why this gets ignored so often. Per the written statement of the Mountain West attorney, Barry Brett: "The BCS is not a corporation or other entity formalized by filing in any jurisdiction. It is not a party to the proposed ESPN television agreement ...The ESPN agreement states that the BCS is not a joint venture (i.e. "ESPN recognizes that there is no Bowl Championship Series entity or BCS entity)."

How astounding is this? We heap such scorn on the BCS, we know it exists, but as a legal entity, it's a vacuum.

Why begin here?

Because the BCS lawyers are being crafty in setting up their cover argument. I guarantee someone was sitting around the conference table and said, "This is great and all, but how are we going to avoid antitrust scrutiny by pulling out six conferences from the overall NCAA football pool and making them richer at the expense of smaller conferences and schools?" And millions of dollars later, this was their solution. If an entity doesn't exist it can't violate the Sherman Act.

That's smart from a legal perspective, but it doesn't pass the eye test. If the BCS lawyers have cemented this figment to such a degree that ESPN doesn't even acknowledge the existence of the BCS, shouldn't this raise a red flag for the rest of us? What are they trying to avoid by their structure?

Being found to be doing exactly what they are doing, violating the Sherman Act.





2. The NCAA, for once, isn't the bad guy in this scenario. Why? Because the BCS system, unique among the 88 sports sponsored by the NCAA, takes the power away from the NCAA. The NCAA doesn't get the money generated from these games, the BCS cartel does. Football is such a high revenue sport that the big schools effectively executed their own Heisman maneuver, giving the stiff arm to the NCAA.

Why does this matter? It means that the top division of football stands alone in the way they determine their overall champion. Why does that happen? Because the money is so substantial. How has that happened? The big six conferences (Big East, Big 12, Big Ten, SEC, Pac-10 and the ACC) and Notre Dame have colluded to protect their own interests to the exclusion of the other schools.

3. Every sports league except major league baseball has been found to violate the Sherman Act at some point. The NFL, the NBA, the NCAA. You name it and a league has been held in violation. While people like Colin Cowherd might wish that Congress kept its nose out of sports, sports leagues are pretty frequent violators of antitrust law. It's why many have sought to get the antitrust exemption enjoyed by baseball, courtesy of a 1922 legal reasoning flaw by Oliver Wendell Holmes that said baseball wasn't interstate commerce since "the travel wasn't the essential thing."

While the ruling is wrong on the law, it hasn't yet been reversed. So, baseball is the only sport that operates outside the framework of Sherman Act. (Although, to be fair, baseball is governed somewhat by antitrust law because they have to fear the Supreme Court choosing to one day overrule the wrongly decided opinion if the league did something so egregious that a challenge to the rule reaches the Supreme Court.)

Nevertheless, the failure of sports leagues to justify themselves when held up to antitrust law is important because I think most fans believe that sports leagues aren't businesses in the same way that even their local chain restaurant or bar is a business. That's a figment of our fan imagination. In fact, if it weren't for Georgia and Oklahoma's successful challenging of the NCAA television regulations in 1984 as a violation of the Sherman Act, we'd still be unable to watch many college football games on television. Why? Because the NCAA restricted television rights to increase their payout for football games. Yep, even college sports entities can be guilty of creating monopolies.

4. BCS payouts represent real injury. The 65 teams that comprise the six BCS conferences account for 54.6 percent of the 119 teams in football's top division, yet receive 87 percent of the funds. Thus, the remaining 13 percent of funds is shared by 45.4 percent of major college football teams. In 11 years, just four teams from outside the BCS conferences have received bids to the big bowls while 87 big six conference representatives have gone. (Notre Dame's three appearances comprise the remainder of the 94 total slots.)

Why use these figures? Because the BCS has been in existence long enough for its actual impact to be determined pretty clearly. The intent of the BCS agreement is to reward its selected participants and exclude the remainder. This isn't a philosophical argument, it's a real and apparent injury as demonstrated by the actual results. Many antitrust arguments rely on less clear-cut injury.

And the injury isn't just to to the individual teams, it's to the conferences as a whole, since every big six conference school shares the revenue with their conference mates in some fashion when it reaches the BCS. So it's a double loss to the small schools; not only do the individual teams reap the rewards, their conference mates do as well.

5. The hearing was designed to put pressure on the Department of Justice to investigate the BCS for an antitrust violation. This has been ignored by most media. The purpose of the hearing wasn't to create an a-ha! moment -- "It was Commissioner Swofford with the lamp in the kitchen!" Rather, it's a process. And if the Department of Justice conducts its own investigation, change will happen quicker than anything Congress can manage. Right now, there are several different bills floating around on the Hill. All of them are long-term fixes that require enormous amounts of cat-herding. I'm not sure there's enough interest to overcome Congressional inertia. Quite simply, the vast majority of Congressional representatives don't care about the BCS, and the BCS executives know this. So Congress isn't the real threat to the BCS, the Department of Justice investigation is the real threat. This hearing was intended to increase the political pressure enough on the DOJ to get them moving.

6. What's the ultimate irony that no one seems to be pointing out? The smaller conferences outside the big six want the BCS to bring in more revenue. They want an increase in the ticket sales and television pie via more big-time games. What if the BCS's best defense isn't that they don't illegally restrict trade -- they plainly do -- but that this restriction actually leads to a more affordable product for consumers and the generation of less overall revenue? How many times has a monopoly existed yet not yielded anywhere near a maximization of revenues? Welcome to the BCS rabbit hole. It's such a convoluted and counterintuitive system that its very inefficiencies become, paradoxically, its greatest strengths.

Think the tax code is complicated? Meet the collegiate sports equivalent.

Sooner or later, monopoly or not, the BCS makes everyone want to pull their hair out. Maybe that's why no one is really talking about it.