An NFL Lawsuit & The End of the NCAA

Happy Monday, I’m Eriq Gardner.

Welcome back to The Rainmaker and congratulations to the Kansas City Chiefs. This week, fresh off the Super Bowl, I’m diving into the massive legal war that could end college athletics as we know it, plus updates on Steve Wynn, the Microsoft-Activision merger, Birkin bags in the metaverse, and a bad week for Gibson Dunn. (Was this email forwarded to you? Click this link to subscribe.) And if you happen to be in LA or NY tomorrow, and are searching for something romantic to do with your Valentine, Puck has partnered with National Geographic for a special screening of Fire of Love—a documentary feature Oscar nominee. It’s only available to Puck members, and you can RSVP here. But first…

If You Thought This Super Bowl Was Good…

I’m sure the NFL was thrilled with last night’s close game between the Chiefs and the Eagles, but that doesn’t mean the league welcomes economic competition between teams. As fans know, the NFL restricts its 32 teams from licensing or streaming their own games, which is how you end up with sports packages like NFL Sunday Ticket, which costs as much as $99 a month and excludes in-market games. That could all change with a class action brought by Sunday Ticket subscribers who are suing for an eye-popping $6.1 billion in damages. Last week, U.S. District Court Judge Phillip Gutierrez agreed to certify the suit, teeing up an antitrust trial that could begin next February, just after Super Bowl LVIII in Las Vegas. There’s also a potential injunction on the table, which could shake the league to its core. At a recent hearing, NFL lawyers led by Beth Wilkinson tried to argue that any injunctive relief would be moot because the league’s deal with DirecTV just expired, and its new partnership with YouTube TV is expected to offer fans more buying options for out-of-market games. But simply allowing New Yorkers to cheaply watch the Dallas Cowboys is not enough for Judge Gutierrez, who wrote in a Feb. 7 order that he found the league’s arguments “myopic and unconvincing.” Could Judge Gutierrez issue an injunction that completely blows up how the NFL pools TV rights and then collectively licenses them to media partners? A couple years ago, the NFL attempted to foreclose this very possibility in a Supreme Court petition that argued that the cooperation of all 32 teams is “essential if there are to be broadcasts at all,” but the justices declined to intervene. So now the NFL is backed up closer to its own end zone, and with time ticking down. Will it settle, which would surely be very costly given the seven years that plaintiffs’ lawyers have already invested in this case? Or attempt the riskiest of plays—taking this to trial?

On the Docket, Part 1

Did Wynn Resorts sanction sexual harassment by founder Steve Wynn? A federal judge in Nevada apparently finds that plausible after hearing what happened after word got out that he acted inappropriately towards women who worked at a Wynn Las Vegas salon. According to the judge’s Feb. 3 order (read here), Wynn resigned as chairman and C.E.O., but nevertheless continued to frequent this salon, and management allowed him to be around accusers, despite the media firestorm: “The Court finds that the lack of corrective measures… is sufficient to allege a claim for hostile work environment.”

The Microsoft-Activision merger is in deep trouble after U.K. authorities provisionally concluded that the corporate marriage would result in higher prices and less innovation for gamers. A final report is due April 26, but as I previously explained, Microsoft is fighting the clock on this one, and the U.K. move probably means that the F.T.C. won’t need an emergency injunction, allowing chair Lina Khan to take her sweet time in an administrative proceeding. Meanwhile, in a civil suit brought by gamers, Microsoft recently argued that no one “can definitively say by what date the parameters of this transaction will be finalized” and, more intriguingly, “no one can say with certainty what the final transaction will look like.” Uh-oh.

Is This the End for the NCAA?

Colleges are losing the battle over student-athlete pay. Now come the bigger legal challenges, over wages, unionization, and multi-million dollar deals that will transform the competitive landscape. Can the NCAA survive?

ERIQ GARDNER

College sports, as we once knew it, are finished. That’s the clear takeaway from the saga of 19-year-old Jaden Rashada, one of the nation’s top football recruits. Last summer, Rashada reportedly signed a $14 million NIL (“name, image and likeness”) contract with the Gator Collective, an unaffiliated booster club at the University of Florida. But when the club essentially reneged on the deal, Rashada ditched Florida for Arizona State. Until recently, of course, this bizarre recruiting adventure would have been unprecedented, not to mention illegal, under NCAA rules. But college sports have become a legal Wild West ever since players began agitating for compensation. Staggering multi-million dollar commitments and loophole-ridden contracts are just a preview of the chaotic changes to come. Two years ago, after all, the Supreme Court delivered an earthquake when the justices unanimously ruled in NCAA v. Alston that the billion-dollar NCAA isn’t immune to antitrust laws just because of some cherished tradition around “amateurism.” The justices shut down the NCAA’s justification for limiting education-related benefits that if schools began compensating athletes, the public could lose interest in its product. Afterwards, taking the hint that student-athletes would inevitably be paid, the NCAA issued tentative guidelines for athletes to accept sponsorship deals without blatant pay-for-play arrangements. But the awkward reality is that it’s nearly impossible to distinguish between legitimate and illegitimate payments, especially when the NCAA, soon to be led by former Massachusetts Governor Charlie Baker, suddenly seems hesitant to enforce standards. In short, this won’t stave off the revolution. As Brett Kavanaugh noted in a fiery concurrence in Alston, antitrust laws could knock down all of the NCAA’s remaining pay restrictions. “The NCAA’s business model would be flatly illegal in almost any other industry in America,” he wrote, noting that paying market wages could imperil everything from non-revenue-generating sports to Title IX. There are, after all, some 180,000 Division I student-athletes in the U.S., and there’s no way that every college will have the funds to compensate them fairly. Will new legislation be needed? How about collective bargaining? Kavanaugh put it all on the table. In the end, the high court stopped short of ruling on student-athlete pay, but such determinations are nevertheless coming soon. Here’s the current legal state of play.

Black Swan Paradigm

On Wednesday, the Third Circuit Court of Appeals will hear oral arguments in Johnson v. NCAA, an important case that addresses whether college athletes, who are supervised for long hours and sometimes disciplined, qualify as “employees” under the Fair Labor Standards Act. If so, they may be entitled to minimum wage and overtime pay. This dispute picks up right where Alston left off, and gets to the core of the relationship between colleges and their athletes: Who is the primary beneficiary? The answer may hinge on a legal test established a decade ago, when a group of interns sued Fox Searchlight over unpaid work on the Oscar-winning film, Black Swan. In short, the test asks things like whether the supposed employee receives educational training and/or college credit, and whether the experience accommodates other academic commitments. In Johnson, the student-athletes argue that schools are profiting by forcing young men and women to prioritize athletics over other commitments. A federal judge agreed that this was plausible enough to warrant a trial to determine if their situations fit the definition of “employment.” The NCAA, now appealing that decision, counters that student-athletes participate without any real expectation of earning an income and there are health and social benefits of being involved in sports. The stakes here are seismic. If schools are forced to treat athletes as employees, that would also mean tracking work hours, withholding taxes, and paying into unemployment programs. Doing so, they say, “could make most sports cost-prohibitive.” (Would that mean the end of, say, fencing or rowing?) The suing athletes respond that the solution is to change the rules so that schools are not exercising sufficient control over them. As for compensation, the athletes jab at how, in the wake of Alston, the NCAA’s definition of an “amateur” seems to have switched from “a student-athlete who isn’t getting paid” to “a student-athlete who is getting paid, so long as the money is not coming from [schools] directly.” That definition may change again, one way or another. The National Labor Relations Board, which is now swinging to the left thanks to President Biden’s appointments, appears on the verge of recognizing unions among college athletes. That could open up a path for athletes in top revenue-generating sports to collectively negotiate a portion of NCAA revenues. Lawmakers are also getting involved. The California legislature, for example, is considering a bill that would force public universities to split sports revenue with student-athletes, and other states are taking steps to ensure that students can exploit NIL deals. More litigation could also lead schools to begin apportioning TV money to athletes. The big case to watch is House v. NCAA. Led by legendary sports attorney Jeffrey Kessler, this one takes aim at the NCAA’s broadcast revenue on antitrust grounds. The NCAA, in response, has argued that athletes haven’t shown any legal injury because a broadcaster needn’t license anyone’s likeness to show a game. Claudia Wilken, the same federal judge in Oakland who presided over Alston, has already rejected that argument as missing the point. She said the key allegation is not that athletes have any direct right to be compensated for what’s broadcast on television, but that absent the NCAA’s restrictions, schools would be competing for talent by allowing athletes to share broadcast revenue. That’s sufficient, she ruled, and the NCAA hasn’t justified its pay rules on competition grounds just yet either. She will soon take up a bid to certify a class action. A trial wouldn’t take place before 2025.

R.I.P. NCAA?

So, are college sports doomed? That’s the question I’ve been throwing to knowledgeable insiders the last few weeks. It’s hard not to read the briefs, see the Rashada saga, and not wonder whether it’s over. College programs could indeed become vastly more expensive to maintain, and some—especially less popular men’s sports, like tennis and wrestling—could be on the chopping block thanks to everything from minimum wage laws to Title IX. As for football and basketball, will they remain popular if they are played mostly by a small group of rich schools that no longer prize regional rivalries and treat recruitment like free agency? Will resentment begin to foment? Everyone I’ve spoken to agrees that things are fundamentally changing and there’s no turning back. Nearly all believe there’s not enough political will for Congress to intervene, either. “The product is still delivering,” one media executive told me. Indeed, January’s college football playoff pulled sensational ratings, even if the championship, a Georgia blowout, lost viewers. “There’s definitely some trouble on the horizon,” cautioned another exec, referencing recruitment scandals. “If there’s blame, it belongs to the NCAA which did nothing despite everyone seeing this coming.” Marc Edelman, a sports law professor who has been one of the leading scholars on the subject, believes that once the NCAA is forced to lift compensation restraints, the “pretend endorsements will go away and deal-making will just take place over the table.” Yes, to the chagrin of Varsity Blues parents hunting for scholarships, some sports like squash, fencing, and golf may be endangered, he told me, but that’s “not a good reason to deny pay to a workforce that’s predominately African American.” He also thinks most schools will still be able to afford premier sports given the outsized salaries now enjoyed by coaches and athletic administrators. Echoing Kavanaugh, he added, “There’s really nothing else that parallels the college football and basketball system in the United States. It’s about time.”

On the Docket, Part 2

The Hermès “Metabirkin” trial ended Wednesday with a landmark win for the French fashion house, which had alleged that an artist’s N.F.T. version of its signature handbag violated trademark rights. Still, I have to imagine that the $133,000 in damages was less than the company’s attorney fees, and the law may shift thanks to that Jack Daniel’s case about to be heard by the Supreme Court. So I’m not sure what other trademark owners will take from this one.

Here’s the sanctions order in the (now settled) privacy class action over the Cambridge Analytica scandal that’s got many lawyers buzzing. “It’s almost as if Facebook and Gibson Dunn spent the better part of three years trying to gaslight their opponents, not to mention the Court,” writes U.S. District Judge Vince Chhabria, detailing how the defendants tried to frustrate discovery. The decision concludes with an order that Facebook and Gibson Dunn are jointly responsible for a $925,078 penalty.

It’s been a pretty impressive week for Disney’s Bob Iger, who resolved two feuds—one with investor Nelson Peltz, and the other with Ron DeSantis over whether the “woke” corporation can keep the self-governing district around Disney World. On the latter front, it appears the solution (see the bill) is for Florida to reclaim control while ceding the economic benefits of independence. With DeSantis now able to appoint a board to set new rules for the locality, there’s the potential for controversy. But the financially-minded Iger, looking for a successor, and the virtue-signaling DeSantis, eyeing higher office, will each take the opportunity to proclaim a short-term victory.

As a court order today makes clear, we’re about to learn much more about Trump’s alleged interference in the Georgia 2020 election. But given how coming reports won’t identify witnesses who apparently lied under oath to a grand jury, there will be plenty of intrigue and speculation.

Telecom Blame Games

Finally, with House Republicans looking for someone to blame for DirecTV’s recent decisions to drop Newsmax and One America News (OAN), don’t be surprised if Bill Kennard is asked to testify before Congress. You might remember Kennard from his days leading the F.C.C. back in the late ’90s, when he was the first Black chief of the agency. Kennard later went into private equity and took up board positions at companies like The New York Times and Ford. But two of his postings, in particular, make for a good conspiracy theory. Kennard is currently chairman of AT&T, the parent of DirecTV, as well as a board member at Staple Street Capital, the majority owner of Dominion Voting Systems—the same voting tech firm that is pursuing huge defamation lawsuits after being targeted by Trump for his loss in the 2020 election. This past week, OAN quietly filed tortious interference claims against AT&T, Dominion, and Kennard—alleging that Kennard, nudged by liberal interest groups, used his influence to get DirecTV to drop OAN. Previously, AT&T encouraged OAN’s entrance onto the cable scene, but now the San Diego-based far right network owned by the Herring family is targeting the guy who once served in the Clinton and Obama administrations. Don’t be surprised if Newsmax follows suit, although a Dominion spokesperson tells me the new legal claim is “frivolous.” Thoughts? Tips? Email me at eriq@puck.news. Also… Go Northwestern!

FOUR STORIES WE’RE TALKING ABOUT