Unpredictable March Madness and the Law

This past weekend sixty-four teams played a total of fifty-two basketball games. Games are broadcast over four different television networks, and tens of millions of eyes remain glued to T.V. sets across the country — soaking up each buzzer-beating shot and Cinderella story. Just as unpredictable as the outcome of each tournament game is the result of a case pending against the NCAA, the entity that profits enormously from the nation’s fixation with March Madness.

O’Bannon v. National Collegiate Athletic Association (NCAA), an antitrust class-action lawsuit, seeks to require the NCAA, and other enterprises who benefit from college-athletes’ images and popularity, to pay the players. This potential change in rules could shift these basketball and football stars from amateur to professional athletes. This change would significantly alter the landscape of collegiate sports.

Ed O’Bannon, a former UCLA basketball star, along with other former college athletes, filed suit in July 2009. The original defendants included the NCAA, the Collegiate Licensing Company, and Electronic Arts (best known for EA Sports). The latter two settled for $40 million. Last August, federal judge Claudia Wilken ruled in favor of the players, holding that not paying athletes for the commercial use of their likeness and image was a violation of antitrust laws. The NCAA’s appeal is being heard this month by the Ninth U.S. Circuit Court of Appeals.

This is a divisive issue that has passionate proponents on both sides. There are people in favor of paying college athletes and many that are opposed. In either case, one thing is certain: this March, there is much more than tournament brackets on the line.

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What Is the NBA?

basketballProfessor Nadelle Grossman has another forthcoming publication, “What Is the NBA?”, written for the faculty symposium issue of the Marquette Sports Law Review.  The abstract is below, and you can access the full article at SSRN:

The NBA’s organizational structure is curious.  While courts at times refer to the NBA as a joint venture and at other times as a single entity, their analyses are conducted not for state organization law purposes but to assess the NBA’s compliance with federal antitrust law.  Commentators, too, consistently address the NBA’s organizational structure only under antitrust law and not state organization law. As I argue, given the different purposes of these two legal regimes — antitrust law to protect consumers through preserving competition, and state organization law to ensure managers are faithful to the business purpose and to create a default structure among owners and managers — conclusions about the NBA’s organizational structure for purposes of compliance with antitrust law does not control the analysis of the NBA’s structure for purposes of state organization law.

To fill the gap in case law and commentary, this article analyzes the NBA’s organizational form under state organization law.  This analysis is important because the NBA’s organizational form impacts the rights and duties of the member team-owners of the NBA.  If, for example, the NBA is a joint venture partnership under state organization law — that is, an association of team owners who have come together to pursue a limited scope business for profit — then by default, its members would owe fiduciary duties to the other members and any member could seek judicial expulsion of a recalcitrant member.

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The NBA, Television Broadcasting Rights, and Collective Bargaining

Television broadcasting rights in professional sports are a huge chunk of the revenue equation for professional leagues, and it isn’t very hard to see how that is the case. For example, the current NBA TV deal is worth about $930 million annually. In 2016, this deal is set to expire and current reports indicate that an extension is in the works that will pay the NBA over $2 billon annually for the rights to broadcast games on Turner and ESPN networks. When this deal comes to fruition, the revenue generated by the TV deal will dwarf the money coming in from any other source.

While the value of the NBA’s television broadcasting rights are staggering, the most interesting aspect of the new deal is how it will affect the collective bargaining process. In 2011, the NBA suffered through a lockout where owners claimed to be losing hundred of millions of dollars each year. For this reason, the owners argued, the player’s cut of the revenue needed to be scaled back. By the time the lockout ended, the owners had modest success in achieving this particular goal, pinning the player’s share of basketball related income back to between 49% and 51%. The previous basketball related income split was approximately 57–43% in favor of the players.

With the television revenue doubling by 2016, the owners will not have a leg to stand on if they again try to argue that teams are losing money. Considering the amount of money set to be on the table, the players are likely to fight for a bigger chunk. And if the owners aren’t reasonable about it, the league could be looking at another lockout.

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