Law v. National Collegiate Athletic Ass'n

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
JAN 23 1998
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

NORMAN LAW, ANDREW GREER,
PETER HERRMANN, MICHAEL
JARVIS, JR., and CHARLES M.
RIEB, individually and on behalf of
others similarly situated,

Plaintiffs-Appellees,
v.

NATIONAL COLLEGIATE
No. 96-3034
ATHLETIC ASSOCIATION,

Defendant-Appellant,

and

WILLIAM HALL,

Amicus Curiae.

Appeal from the United States District Court
for the District of Kansas
(D.C. No. 94-2053-KHV)

William C. Barnard (Gayle A. Reindl, Donald C. Biggs and Mary T. Doherty of
Sommer & Barnard, Indianapolis, Indiana; John J. Kitchin and Linda J. Salfrank
of Swanson, Midgley, Gangwere, Kitchin & McLarney, Kansas City, Missouri,
with him on the briefs) for Defendant-Appellant.
W. Dennis Cross (Lori R. Schultz of Morrison & Hecker, Kansas City, Missouri;
Robert G. Wilson of Cotkin & Collins, Los Angeles, California; and Gerald I.
Roth, Allentown, Pennsylvania, with him on the briefs) for Plaintiffs-Appellees.

Leonard B. Simon, Jan M. Adler, Dennis Stewart and Bonny E. Sweeney of
Milberg, Weiss, Bershad, Hynes & Lerach, San Diego, California; R. Lawrence
Ward, Phillip W. Bledsoe of Shugart, Thomson, & Kilroy, Kansas City, Missouri;
and Steven Beldsoe, Overland Park, Kansas of Shugart, Thomson, & Kilroy, on
the brief for the Amicus Curiae.

Before EBEL , LOGAN, and KELLY , Circuit Judges.

EBEL , Circuit Judge.

Defendant-Appellant the National Collegiate Athletic Association

("NCAA") promulgated a rule limiting annual compensation of certain Division I

entry-level coaches to $16,000. Basketball coaches affected by the rule filed a

class action challenging the restriction under Section 1 of the Sherman Antitrust

Act. The district court granted summary judgment on the issue of liability to the

coaches and issued a permanent injunction restraining the NCAA from

promulgating this or any other rules embodying similar compensation restrictions.

The NCAA now appeals, and we affirm.

-2-
 I. Background

The NCAA is a voluntary unincorporated association of approximately

1,100 educational institutions. 1
The association coordinates the intercollegiate

athletic programs of its members by adopting and promulgating playing rules,

standards of amateurism, standards for academic eligibility, regulations

concerning recruitment of student athletes, rules governing the size of athletic

squads and coaching staffs, and the like. The NCAA aims to "promote

opportunity for equity in competition to assure that individual student-athletes and

institutions will not be prevented unfairly from achieving the benefits inherent in

participation in intercollegiate athletics."

The NCAA classifies sports programs into separate divisions to reflect

differences in program size and scope. NCAA Division I basketball programs are

generally of a higher stature and have more visibility than Division II and III

basketball programs. Over 300 schools play in Division I, and each Division I

member hires and employs its own basketball coaches.

During the 1980s, the NCAA became concerned over the steadily rising

costs of maintaining competitive athletic programs, especially in light of the

requirements imposed by Title IX of the 1972 Education Amendments Act to

Because this appeal stems from the grant of a motion for summary
1

judgment, we review the facts taken in the light most favorable to the NCAA, the
non-moving party. See Kaul v. Stephan, 83 F.3d 1208, 1212 (10th Cir. 1996).

-3-
increase support for women's athletic programs. The NCAA observed that some

college presidents had to close academic departments, fire tenured faculty, and

reduce the number of sports offered to students due to economic constraints. At

the same time, many institutions felt pressure to "keep up with the Joneses" by

increasing spending on recruiting talented players and coaches and on other

aspects of their sports programs in order to remain competitive with rival schools.

In addition, a report commissioned by the NCAA known as the "Raiborn Report"

found that in 1985 42% of NCAA Division I schools reported deficits in their

overall athletic program budgets, with the deficit averaging $824,000 per school.

The Raiborn Report noted that athletic expenses at all Division I institutions rose

more than 100% over the eight-year period from 1978 to 1985. Finally, the

Report stated that 51% of Division I schools responding to NCAA inquiries on

the subject suffered a net loss in their basketball programs alone that averaged

$145,000 per school.

Part of the problem identified by the NCAA involved the costs associated

with part-time assistant coaches. The NCAA allowed Division I basketball teams

to employ three full-time coaches, including one head coach and two assistant

coaches, and two part-time coaches. The part-time positions could be filled by

part-time assistants, graduate assistants, or volunteer coaches. The NCAA

imposed salary restrictions on all of the part-time positions. A volunteer coach

-4-
could not receive any compensation from a member institution's athletic

department. A graduate assistant coach was required to be enrolled in a graduate

studies program of a member institution and could only receive compensation

equal to the value of the cost of the educational experience (grant-in-aid)

depending on the coach's residential status (i.e. a non-resident graduate assistant

coach could receive greater compensation to reflect the higher cost of out-of-state

tuition than could an in-state student). The NCAA limited compensation to part-

time assistants to the value of full grant-in-aid compensation based on the value

of out-of-state graduate studies.

Despite the salary caps, many of these part-time coaches earned $60,000 or

$70,000 per year. Athletic departments circumvented the compensation limits by

employing these part-time coaches in lucrative summer jobs at profitable sports

camps run by the school or by hiring them for part-time jobs in the physical

education department in addition to the coaching position. Further, many of these

positions were filled with seasoned and experienced coaches, not the type of

student assistant envisioned by the rule.

In January of 1989, the NCAA established a Cost Reduction Committee

(the "Committee") to consider means and strategies for reducing the costs of

intercollegiate athletics "without disturbing the competitive balance" among

NCAA member institutions. The Committee included financial aid personnel,

-5-
inter-collegiate athletic administrators, college presidents, university faculty

members, and a university chancellor. In his initial letter to Committee members,

the Chairman of the Committee thanked participants for joining "this gigantic

attempt to save intercollegiate athletics from itself." It was felt that only a

collaborative effort could reduce costs effectively while maintaining a level

playing field because individual schools could not afford to make unilateral

spending cuts in sports programs for fear that doing so would unduly hamstring

that school's ability to compete against other institutions that spent more money

on athletics. In January of 1990, the Chairman told NCAA members that the goal

of the Committee was to "cut costs and save money." It became the consensus of

the Committee that reducing the total number of coaching positions would reduce

the cost of intercollegiate athletic programs.

The Committee proposed an array of recommendations to amend the

NCAA's bylaws, including proposed Bylaw 11.6.4 that would limit Division I

basketball coaching staffs to four members--one head coach, two assistant

coaches, and one entry-level coach called a “restricted-earnings coach”. 2 The

2
Bylaw 11.6.4 provided in pertinent part:

Number Limits. There shall be a limit on the number of coaches that may
be employed by an institution in each sport (other than football) as follows:
Sport: Basketball, Men; Head or Assistant Coach: 3; Restricted-Earnings
Coach: 1.

-6-
restricted-earnings coach category was created to replace the positions of part-

time assistant, graduate assistant, and volunteer coach. 3 The Committee believed

that doing so would resolve the inequity that existed between those schools with

graduate programs that could hire graduate assistant coaches and those who could

not while reducing the overall amount spent on coaching salaries.

A second proposed rule, Bylaw 11.02.3, restricted compensation of

restricted-earnings coaches in all Division I sports other than football to a total of

$12,000 for the academic year and $4,000 for the summer months (the "REC

Rule" for restricted-earnings coaches). 4 The Committee determined that the

3
The proposed rule included a "grandfather clause" exempting schools
from the staffing limitations where academic tenure, enforceable written
contracts, or formal security-of-employment commitments would make it
impossible to comply with such limits.
4
Bylaw 11.02.3 provided:

Restricted-Earnings Coach. A restricted-earnings coach is any coach who
is designated by the institution's athletics department to perform coaching
duties and who serves in that capacity on a volunteer or paid basis with the
following limitations on earnings derived from the member institution:
(a) During the academic year, a restricted-earnings coach may receive
compensation or remuneration from the institution's athletics
department that is not in excess of either $12,000 or the actual cost
of educational expenses incurred as a graduate student.
(b) During the summer, a restricted-earnings coach may receive
compensation or remuneration (total remuneration shall not exceed
$4,000) from:
(1) The institution's athletics department or any organization
funded in whole or in part by the athletics department or that is
involved primarily in the promotion of the institution's
(continued...)

-7-
$16,000 per year total figure approximated the cost of out-of-state tuition for

graduate schools at public institutions and the average graduate school tuition at

private institutions, and was thus roughly equivalent to the salaries previously

paid to part-time graduate assistant coaches. The REC Rule did allow restricted-

earnings coaches to receive additional compensation for performing duties for

another department of the institution provided that (1) such compensation is

commensurate with that received by others performing the same or similar

assignments, (2) the ratio of compensation received for coaching duties and any

4
(...continued)
athletics program (e.g., booster club, athletics foundation
association);
(2) The institution's camp or clinic ,
(3) Camps or clinics owned or operated by institutional employees,
or
(4) Another member institution's summer camp.
(c) During the summer or the academic year, the restricted-earnings
coach may receive compensation for performing duties for another
department or office of the institution, provided:
(1) The compensation received for those duties outside the athletic
department is commensurate with that received by others
performing those same or similar assignments,
(2) The ratio of compensation received for coaching duties and
any other duties is directly proportionate to the amount of time
devoted to the two areas of assignment, and
(3) The individual is qualified for and is performing the duties
outside the athletic department for which the individual is
compensated.
(d) Compensation for employment from a source outside the institution
during the academic year or from sources other than those specified
under 11.02.3-(b) and 11.02.3-(c) above during the summer shall be
excluded from the individual's limit on remuneration .

-8-
other duties is directly proportional to the amount of time devoted to the two

areas of assignment, and (3) the individual is qualified for and actually performs

the duties outside the athletic department for which the individual is compensated.

The REC Rule did not prevent member institutions from using savings gained by

reducing the number and salary of basketball coaches to increase expenditures on

other aspects of their athletic programs.

Supporting adoption of the REC Rule, the Committee stated:

The largest expense item in the athletics budget is personnel.
Currently, only football and basketball have limits on the number of
coaches who may be employed, and the existing categorical designations of
part-time graduate student and volunteer coach have not been effective in
reducing the number of full-time paid employees associated with the sport.
In addition, the committee recognizes the recent proliferation of part-time
personnel associated with many Division I sports.
Proposed limitations reflect an effort to (1) reduce the number of
coaches associated with each sport by at least one full-time-equivalent
position; (2) establish an "unrestricted" head or assistant coach category
that will accommodate any type of volunteer, paid, full-time or part-time
coach; and (3) establish a "restricted earnings" category that will encourage
the development of new coaches while more effectively limiting
compensation to such coaches.

"Report of the NCAA Special Committee on Cost Reduction," Part Two, ¶ 1.

The NCAA adopted the proposed rules, including the REC Rule, by

majority vote in January of 1991, and the rules became effective on August 1,

1992. 5 The rules bind all Division I members of the NCAA that employ

5
Other cost-saving measures were adopted that, inter alia , limited:
* the number of coaches who could recruit off campus.
(continued...)

-9-
basketball coaches. The schools normally compete with each other in the labor

market for coaching services.

In this case, plaintiffs-appellees were restricted-earnings men's basketball

coaches at NCAA Division I institutions in the academic year 1992-93. They

challenged the REC Rule's limitation on compensation under section 1 of the

Sherman Antitrust Act, 15 U.S.C. § 1 (1990), as an unlawful "contract,

combination . . . or conspiracy, in restraint of trade." They did not challenge

other rules promulgated by the NCAA, including the restriction on the number of

coaches. The district court exercised jurisdiction pursuant to 28 U.S.C. § 1337

(1993) 6 and 15 U.S.C. §§ 15 and 26 (1982). 7

5
(...continued)
* off-campus contacts with prospective student-athletes.
* visits by prospective student-athletes.
* printed recruiting materials.
* the number of practices before the first scheduled game.
* the number of games and duration of seasons.
* team travel and training table meals.
* financial aid grants to student-athletes.
6
28 U.S.C. § 1337 provides in relevant part:

(a) The district courts shall have original jurisdiction of any civil action or
proceeding arising under any Act of Congress regulating commerce or
protecting trade and commerce against restraints and monopolies.
7
15 U.S.C. § 15 provides in relevant part:

(a) Except as provided in subsection (b) of this section [regarding foreign
states], any person who shall be injured in his business or property by
(continued...)

- 10 -
 The district court addressed the issue of liability before addressing issues of

class certification and damages. Ruling on cross-motions for summary judgment,

the court found the NCAA liable for violating section 1. Following the ruling, an

administrative committee of the NCAA rescinded the compensation limits.

However, the rescission was subject to ratification by NCAA members at their

January 1996 meeting, and the appellate record does not reflect that such

ratification ever occurred. Prior to the meeting, a new rule was proposed that

would have eliminated the restricted-earnings coach position and replaced it with

a position having similar compensation restrictions. On January 5, 1996, the

district court, pursuant to 15 U.S.C. § 26, permanently enjoined the NCAA from

enforcing or attempting to enforce any restricted-earnings coach salary limitations

against the named plaintiffs, and it further enjoined the NCAA from "reenacting

7
(...continued)
reason of anything forbidden in the antitrust laws may sue therefor in any
district court of the United States in the district in which the defendant
resides or is found or has an agent, without respect to the amount in
controversy, and shall recover threefold the damages by him sustained, and
the cost of suit, including a reasonable attorney's fee.

15 U.S.C. § 26 provides in relevant part:

Any person, firm, corporation, or association shall be entitled to sue for and
have injunctive relief, in any court of the United States having jurisdiction
over the parties, against threatened loss or damage by a violation of the
antitrust laws.

- 11 -
the compensation limitations embodied in [the REC Rule]." The NCAA appeals

the permanent injunction.

II. Summary Judgment Review

Although this is an interlocutory appeal, we have appellate jurisdiction

pursuant to 28 U.S.C. § 1292(a)(1) (1993) because the NCAA seeks review of an

order granting a permanent injunction. 8 In reviewing the injunction, we may also

address the summary judgment order that served as the district court's principal

legal basis for granting the injunction because the district court's ruling on

summary judgment was inextricably intertwined with its ruling granting a

permanent injunction. See Tri-State Generation & Transmission Ass'n, Inc. v.

Shoshone River Power, Inc., 874 F.2d 1346, 1351 (10th Cir. 1989); see also

Moore v. City of Wynnewood, 57 F.3d 924, 930 (10th Cir. 1995) (court may

consider pendent jurisdiction appeals beyond those authorized for interlocutory

appeal if the issues are inextricably intertwined) (citing Swint v. Chambers

County Comm'n, 115 S. Ct. 1203, 1212 (1995)) .

Typically, we review a district court's grant of an injunction for abuse of

discretion. See United States v. Jenks, 22 F.3d 1513, 1519 (10th Cir. 1994).

8
The relevant part of 28 U.S.C. § 1292(a) provides:

[T]he courts of appeals shall have jurisdiction of appeals from:
(1) Interlocutory orders of the district courts . . . granting . . .
injunctions.

- 12 -
However, in this case, the NCAA challenges only that part of the injunction

finding that it violated antitrust law. 9 The district court relied on its prior order

granting summary judgment for that issue. We review de novo a summary

judgment which serves as a basis for an injunction. See id. at 1517.

Summary judgment is appropriate if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact
and that the moving party is entitled to judgment as a matter of law. When
applying this standard, we examine the factual record and reasonable
inferences therefrom in the light most favorable to the party opposing
summary judgment. If there is no genuine issue of material fact in dispute,
then we next determine if the substantive law was correctly applied by the
district court.
While the movant bears the burden of showing the absence of a
genuine issue of material fact, the movant need not negate the non-movant's
claim, but need only point to an absence of evidence to support the non-
movant's claim. If the movant carries this initial burden, the non-movant
may not rest upon its pleadings, but must set forth specific facts showing a
genuine issue for trial as to those dispositive matters for which it carries
the burden of proof. An issue of material fact is genuine if a reasonable
jury could return a verdict for the non-movant.

Kaul v. Stephan, 83 F.3d 1208, 1212 (10th Cir. 1996) (quoting Wolf v. Prudential

Ins. Co. of America., 50 F.3d 793, 796 (10th Cir. 1995) (further citations

omitted)).

9
The NCAA does not challenge other portions of the order, such as the
finding that a remedy at law would be insufficient.

- 13 -
 III. Rule of Reason Analysis

Section 1 of the Sherman Act provides, "Every contract, combination in the

form of trust or otherwise, or conspiracy, in restraint of trade or commerce among

the several States, or with foreign nations, is hereby declared to be illegal." 15

U.S.C. § 1. Because nearly every contract that binds the parties to an agreed

course of conduct "is a restraint of trade" of some sort, the Supreme Court has

limited the restrictions contained in section 1 to bar only "unreasonable restraints

of trade." NCAA v. Board of Regents, 468 U.S. 85, 98 (1984); see also Standard

Oil Co. v. United States, 221 U.S. 1, 52-60 (1911). To prevail on a section 1

claim under the Sherman Act, the coaches needed to prove that the NCAA (1)

participated in an agreement that (2) unreasonably restrained trade in the relevant

market. See Reazin v. Blue Cross & Blue Shield of Kan., Inc., 899 F.2d 951, 959

(10th Cir. 1990). The NCAA does not dispute that the REC Rule resulted from an

agreement among its members. However, the NCAA does contest the district

court's finding that on the record before it, there was no genuine dispute of fact

that the REC Rule is an unreasonable restraint of trade.

Two analytical approaches are used to determine whether a defendant's

conduct unreasonably restrains trade: the per se rule and the rule of reason. See

SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 963 (10th Cir. 1994). The per se

rule condemns practices that "are entirely void of redeeming competitive

- 14 -
rationales." Id. Once a practice is identified as illegal per se, a court need not

examine the practice's impact on the market or the procompetitive justifications

for the practice advanced by a defendant before finding a violation of antitrust

law. Rule of reason analysis, on the other hand, requires an analysis of the

restraint's effect on competition. See National Soc'y of Prof'l Engineers v. United

States, 435 U.S. 679, 695 (1978). A rule of reason analysis first requires a

determination of whether the challenged restraint has a substantially adverse

effect on competition. See SCFC, 36 F.3d at 965; United States v. Brown Univ.,

5 F.3d 658, 668 (3d Cir. 1993). The inquiry then shifts to an evaluation of

whether the procompetitive virtues of the alleged wrongful conduct justifies the

otherwise anticompetitive impacts. See Brown Univ., 5 F.3d at 669. The district

court applied the rule of reason standard to its analysis of the REC Rule.

Horizontal price-fixing is normally a practice condemned as illegal per se.

See FTC v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411, 436 n.19 (1990)

("horizontal price-fixing . . . has been consistently analyzed as a per se violation

for many decades"); United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223

(1940). By agreeing to limit the price which NCAA members may pay for the

services of restricted-earnings coaches, the REC Rule fixes the cost of one of the

component items used by NCAA members to produce the product of Division I

basketball. As a result, the REC Rule constitutes the type of naked horizontal

- 15 -
agreement among competitive purchasers to fix prices usually found to be illegal

per se. See, e.g., Mandeville Island Farms, Inc. v. American Crystal Sugar Co.,

334 U.S. 219, 235 (1948) (complaint alleging conspiracy among sugar refiners to

purchase sugar-beets at agreed-upon prices sufficient to survive a motion for

dismissal because the challenged conduct is precisely the type of activity

condemned by section 1 of the Sherman Act); National Macaroni Mfrs. Ass'n v.

FTC, 345 F.2d 421, 426-27 (7th Cir. 1965) (agreement among macaroni producers

to limit amount of premium priced durum wheat purchased and to substitute

specified percentage of inferior wheat in finished macaroni per se illegal because

effect of restriction was effectively to reduce price of durum wheat that had risen

as a result of a recent shortage).

However, the Supreme Court recognized in Broadcast Music, Inc. v.

Columbia Broadcasting Sys., Inc., 441 U.S. 1, 23 (1979), that certain products

require horizontal restraints, including horizontal price-fixing, in order to exist at

all. Faced with such a product--the ASCAP blanket music license which could

not exist absent an agreement among artists to sell their rights at uniform prices--

the Court held that a rule of reason analysis should be applied to the restraint. Id.

at 24.

Subsequently, the Supreme Court in NCAA v. Board of Regents departed

from the general treatment given to horizontal price-fixing agreements by refusing

- 16 -
to apply a per se rule and instead adopting a rule of reason approach in reviewing

an NCAA plan for televising college football that involved both limits on output

and price-fixing. See 468 U.S. at 99-103. The Court explained:

Horizontal price fixing and output limitation are ordinarily
condemned as a matter of law under an "illegal per se" approach
because the probability that these practices are anticompetitive is so
high; a per se rule is applied "when the practice facially appears to
be one that would always or almost always tend to restrict
competition and decrease output." In such circumstances a restraint
is presumed unreasonable without inquiry into the particular market
context in which it is found. Nevertheless, we have decided that it
would be inappropriate to apply a per se rule to this case. This
decision is not based on a lack of judicial experience with this type
of arrangement, on the fact that the NCAA is organized as a
nonprofit entity, or on our respect for the NCAA's historic role in the
preservation and encouragement of intercollegiate amateur athletics.
Rather, what is critical is that this case involves an industry in which
horizontal restraints on competition are essential if the product is to
be available at all.

468 U.S. at 100-101 (quoting Broadcast Music, 441 U.S. at 19-20) (footnotes

omitted and emphasis added).

The "product" made available by the NCAA in this case is college

basketball; the horizontal restraints necessary for the product to exist include

rules such as those forbidding payments to athletes and those requiring that

athletes attend class, etc. See id. at 101-02 (what a sports league and its members

"market . . . is competition itself . . . . Of course, this would be completely

ineffective if there were no rules . . . to create and define the competition to be

marketed."). Because some horizontal restraints serve the procompetitive purpose

- 17 -
of making college sports available, the Supreme Court subjected even the price

and output restrictions at issue in Board of Regents to a rule of reason analysis.

See id. at 103; see also Hairston v. Pacific 10 Conference, 101 F.3d 1315, 1318-

19 (9th Cir. 1996) (employing rule of reason analysis and finding that imposing

sanctions for violations of NCAA rules did not violate section 1 of the Sherman

Act); Banks v. NCAA, 977 F.2d 1081, 1088-94 (7th Cir. 1992) (upholding no-

draft and no-agent eligibility rules for student athletes under rule of reason

analysis); Justice v. NCAA, 577 F. Supp. 356, 379-82 (D. Ariz. 1983) (NCAA

sanctions against member institution imposed for violations of NCAA rule barring

compensation of student athletes did not violate antitrust laws under rule of

reason analysis).

Other courts also have applied a rule of reason analysis to sports league

rules, see I ABA Section of Antitrust Law, Antitrust Law Developments 115-16

(4th ed. 1997) (citing cases), including restraints otherwise given per se

treatment, see, e.g., M&H Tire Co., Inc. v. Hoosier Racing Tire Corp., 733 F.2d

973, 980 (1st Cir. 1984) (applying rule of reason standard to a rule requiring all

auto racing competitors to use the same tire and stating that "in the sports area

various agreed-upon procedures may be essential to survival"). See also

Phillip E. Areeda, Antitrust Law ¶ 1478d, at 359 (1986) (noting that courts "have

- 18 -
not woodenly applied the per se prohibitions developed for ordinary business

situations" to sports leagues).

Plaintiff coaches cite the Supreme Court's refusal to create exceptions to

the per se treatment of price-fixing schemes in cases such as Superior Court Trial

Lawyers and Arizona v. Maricopa County Medical Soc'y, 457 U.S. 332, 342

(1982), and urge us to apply a per se analysis to the NCAA rule at issue in this

case. Since neither case dealt with a "product" such as college sports that

requires horizontal restraints to exist, the cases are not persuasive here in light of

the Supreme Court's analysis of NCAA price-fixing under a rule of reason in

Board of Regents.

The coaches also argue that Board of Regents is distinguishable because the

agreement in that case went to marketing the product itself--college sports--and

because that agreement was closer to a joint venture because it involved a "joint

selling arrangement." By contrast, they contend (1) that the hiring of coaches

involves the market for coaching services, an input, rather than college sports, the

output, and (2) that the price-fixing at issue in this case does not involve "joint

buying" because each school independently hires its own coaches. The second

point does not distinguish this case from Board of Regents. In Board of Regents,

like the present case, each school negotiated individually with television networks

- 19 -
within the constraints of price agreements. See 468 U.S. at 93. 10 The first point is

similarly unpersuasive. Board of Regents does not turn on whether the agreement

in question is based on input components or output products. Rather, Board of

Regents more generally concluded that because horizontal agreements are

necessary for sports competition, all horizontal agreements among NCAA

members, even those as egregious as price-fixing, should be subject to a rule of

reason analysis. 11 See 468 U.S. at 101-03.

Finally, the Supreme Court has made it clear that the per se rule is a

"demanding" standard that should be applied only in clear cut cases. See

Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 50 (1977); accord

Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 178

(1965) ("[T]he area of per se illegality is carefully limited."). As a result, courts

consistently have analyzed challenged conduct under the rule of reason when

10
In several instances, the NCAA tries to style itself as a joint venture,
arguing that joint ventures are entitled to more favorable treatment under the
antitrust laws. However, the Supreme Court rejected categorizing the NCAA as a
joint venture with respect to the television rights plan challenged in Board of
Regents because the plan did not "eliminate individual sales of broadcasts, since
these still occur, albeit subject to fixed prices and output limitations." 468 U.S. at
113. Here, the NCAA does not hire coaches for the teams. Rather the teams hire
coaches individually, "albeit subject to fixed prices." Thus, the NCAA does not
operate as a joint venture for the purposes of hiring assistant basketball coaches. As a
result, we do not consider the question of how joint ventures should be treated under the
antitrust laws.
11
Albeit often an abbreviated rule of reason analysis, as discussed below.

- 20 -
dealing with an industry in which some horizontal restraints are necessary for the

availability of a product, even if such restraints involve horizontal price-fixing

agreements. See I ABA Section of Antitrust Law, supra, at 49 (citing cases).

Thus, we apply the rule of reason approach in this case.

Courts have imposed a consistent structure on rule of reason analysis by

casting it in terms of shifting burdens of proof. See I ABA Section of Antitrust

Law, supra, at 53 (citing cases). Under this approach, the plaintiff bears the

initial burden of showing that an agreement had a substantially adverse effect on

competition. See Clorox Co. v. Sterling Winthrop, Inc., 117 F.3d 50, 56 (2d Cir.

1997); Hairston, 101 F.3d at 1319; Orson, Inc. v. Miramax Film Corp., 79 F.3d

1358, 1367 (3d Cir. 1996); Brown Univ., 5 F.3d at 668; see also I ABA Section of

Antitrust Law, supra, at 53, 55 (citing cases); Areeda, supra, ¶ 1502, at 371-72. If

the plaintiff meets this burden, the burden shifts to the defendant to come forward

with evidence of the procompetitive virtues of the alleged wrongful conduct. See

Clorox, 117 F.3d at 56; Hairston, 101 F.3d at 1319; Orson, 79 F.3d at 1367-68;

Brown Univ., 5 F.3d at 669; see also I ABA Section of Antitrust Law, supra, at

53, 66 (citing cases); Areeda, supra, ¶ 1502, at 372. If the defendant is able to

demonstrate procompetitive effects, the plaintiff then must prove that the

challenged conduct is not reasonably necessary to achieve the legitimate

objectives or that those objectives can be achieved in a substantially less

- 21 -
restrictive manner. See Clorox, 117 F.3d at 56; Hairston, 101 F.3d at 1319;

Orson, 79 F.3d at 1368; Brown Univ., 5 F.3d at 669; I ABA Section of Antitrust

Law, supra, at 53, 66. Ultimately, if these steps are met, the harms and benefits

must be weighed against each other in order to judge whether the challenged

behavior is, on balance, reasonable. See Areeda, supra, ¶ 1502, at 372.

A. Anticompetitive Effect

We first review whether the coaches in this case demonstrated

anticompetitive effect so conclusively that summary judgment on the issue was

appropriate. A plaintiff may establish anticompetitive effect indirectly by proving

that the defendant possessed the requisite market power within a defined market

or directly by showing actual anticompetitive effects, such as control over output

or price. See Orson, 79 F.3d at 1367; Brown Univ., 5 F.3d at 668-69; Bhan v.

NME Hosp., Inc., 929 F.2d 1404, 1413 (9th Cir. 1991). A naked, effective

restraint on market price or volume can establish anticompetitive effect under a

truncated rule of reason analysis. See Chicago Prof'l Sports Ltd. Partnership v.

National Basketball Ass'n, 961 F.2d 667, 674 (7th Cir. 1992) (approving

application of "quick look" rule of reason analysis that dispensed with market

definition and assessment of market power in a case involving an output

restriction established by the National Basketball Association).

- 22 -
 The NCAA argues that the district court erred by failing to define the

relevant market and by failing to find that the NCAA possesses power in that

market. The NCAA urges that the relevant market in this case is the entire market

for men's basketball coaching services, 12 and it presented evidence demonstrating

that positions as restricted-earnings basketball coaches make up, at most, 8% of

that market. Thus, the NCAA argues it has at least created a genuine issue of

material fact about whether it possesses market power and that summary judgment

was therefore inappropriate.

The NCAA misapprehends the purpose in antitrust law of market definition,

which is not an end unto itself but rather exists to illuminate a practice's effect on

competition. In Board of Regents, the Court rejected a nearly identical argument

from the NCAA that a plan to sell television rights could not be condemned under

the antitrust laws absent proof that the NCAA had power in the market for

television programming. See 468 U.S. at 109. "As a matter of law, the absence

of proof of market power does not justify a naked restriction on price or output.

To the contrary, when there is an agreement not to compete in terms of price or

output, 'no elaborate industry analysis is required to demonstrate the

anticompetitive character of such an agreement.'" Id. (quoting National Soc’y of

12
According to the NCAA, the relevant market would include, in addition
to coaching positions in Division I schools, coaching positions in Division II and
III schools, junior colleges, high schools, and professional teams.

- 23 -
Prof’l Engineers, 435 U.S. at 692). No "proof of market power" is required where

the very purpose and effect of a horizontal agreement is to fix prices so as to

make them unresponsive to a competitive marketplace. See id. at 110. Thus,

where a practice has obvious anticompetitive effects--as does price-fixing--there

is no need to prove that the defendant possesses market power. Rather, the court

is justified in proceeding directly to the question of whether the procompetitive

justifications advanced for the restraint outweigh the anticompetitive effects

under a "quick look" rule of reason. See Chicago Prof'l Sports, 961 F.2d at 674.

We find it appropriate to adopt such a quick look rule of reason in this

case. Under a quick look rule of reason analysis, anticompetitive effect is

established, even without a determination of the relevant market, where the

plaintiff shows that a horizontal agreement to fix prices exists, that the agreement

is effective, and that the price set by such an agreement is more favorable to the

defendant than otherwise would have resulted from the operation of market

forces. See Gary R. Roberts, The NCAA, Antitrust, and Consumer Welfare, 70

Tul. L. Rev. 2631, 2636-39 (1996) (citing Board of Regents, 468 U.S. at 109-10).

Under this standard, the undisputed evidence supports a finding of

anticompetitive effect. The NCAA adopted the REC Rule to reduce the high cost

of part-time coaches' salaries, over $60,000 annually in some cases, by limiting

compensation to entry-level coaches to $16,000 per year. The NCAA does not

- 24 -
dispute that the cost-reduction has effectively reduced restricted-earnings coaches'

salaries. Because the REC Rule was successful in artificially lowering the price

of coaching services, no further evidence or analysis is required to find market

power to set prices. Thus, in the case at bar, the district court did not need to

resolve issues of fact pertaining to the definition of the relevant market in order

to support its decision on summary judgment that the REC Rule is a naked price

restraint.

The NCAA contends that the district court misapplied Board of Regents, a

case in which the Court had before it detailed factual findings that resulted from a

trial. The NCAA is right about the procedural posture of Board of Regents, but

wrong about its significance. In Board of Regents the Supreme Court relied on

the district court's findings that the television plan in fact resulted in horizontal

price restraints. See 468 U.S. at 99-100. Because the REC Rule is a horizontal

price restraint on its face, similar factual findings are not required in this case.

Further, although in Board of Regents the Court found that the parties had proven

factually that the NCAA had market power in the defined market of college

football, the Court said that as a matter of law it did not need to analyze market

power because horizontal price restraints are so obviously anticompetitive. Id. at

109-10.

- 25 -
 Finally, the NCAA cites Hennessey v. NCAA, 564 F.2d 1136 (5th Cir.

1977) (per curiam). In Hennessey, assistant football and basketball coaches

challenged a NCAA bylaw limiting the number of assistant coaches member

institutions could employ at any one time. See id. at 1141-42. The Fifth Circuit

upheld the rule, concluding that the plaintiff failed to show that the rule was an

unreasonable restraint of trade after weighing the anticompetitive effects with the

procompetitive benefits of the restriction. See id. at 1153-54.

Hennessey is not controlling for a variety of reasons. First, the REC Rule

is distinguishable from the agreement at issue in Hennessey. Hennessey addresses

a restriction on the number of assistant coaches that a Division I school could

employ whereas the REC Rule limits salary of a certain category of coaches.

Therefore, the analysis of the reasonableness of the restraint in Hennessey, which

did not involve a naked restriction on price, will not control the analysis of the

reasonableness of the REC Rule. 13

Second, the Hennessey court placed the burden of showing the

unreasonableness of the coaching restriction in that case on the plaintiff and then

found that the plaintiff could not make such a showing because the rule had only

recently been implemented. See id. In our analysis, the plaintiff only has the

13
Indeed, plaintiffs do not challenge the restrictions on the number of
coaches included in the NCAA’s bylaws.

- 26 -
burden of establishing the anticompetitive effect of the restraint at issue. Once

the plaintiff meets that burden, which the coaches have done in this case by

showing the naked and effective price-fixing character of the agreement, the

burden shifts to the defendant to justify the restraint as a "reasonable" one. See I

ABA Section of Antitrust Law, supra, at 66 (citing cases). It is on this step that

the defendant NCAA stumbles. Thus, we disagree with the Fifth Circuit's

allocation of the burden of proof in Hennessey, and we note that this shift in the

burden of proof could explain the difference in outcome between our case and

Hennessey.

Third, Hennessey predates the Supreme Court's opinion in Board of

Regents. The Fifth Circuit very well may have reached a different result in

Hennessey if it had the benefit of that precedent, because Board of Regents

suggests a less deferential approach to the NCAA than the approach taken in

Hennessey. Finally, of course, Hennessey is not Tenth Circuit precedent, and

accordingly is not binding authority on us.

B. Procompetitive Rationales

Under a rule of reason analysis, an agreement to restrain trade may still

survive scrutiny under section 1 if the procompetitive benefits of the restraint

justify the anticompetitive effects. See Clorox, 117 F.3d at 56; Hairston, 101

F.3d at 1319; Orson, 79 F.3d at 1368; Brown Univ., 5 F.3d at 669; see also I ABA

- 27 -
Section of Antitrust Law, supra, at 53, 66; Areeda, supra, ¶ 1502, at 371-72.

Justifications offered under the rule of reason may be considered only to the

extent that they tend to show that, on balance, "the challenged restraint enhances

competition." Board of Regents, 468 U.S. at 104.

In Board of Regents the Supreme Court recognized that certain horizontal

restraints, such as the conditions of the contest and the eligibility of participants,

are justifiable under the antitrust laws because they are necessary to create the

product of competitive college sports. Id. at 117. Thus, the only legitimate

rationales that we will recognize in support of the REC Rule are those necessary

to produce competitive intercollegiate sports. The NCAA advanced three

justifications for the salary limits: retaining entry-level coaching positions;

reducing costs; and maintaining competitive equity. We address each of them in

turn.

1. Retention of Entry-Level Positions

The NCAA argues that the plan serves the procompetitive goal of retaining

an entry-level coaching position. The NCAA asserts that the plan will allow

younger, less experienced coaches entry into Division I coaching positions.

While opening up coaching positions for younger people may have social value

apart from its affect on competition, we may not consider such values unless they

impact upon competition. See Superior Court Trial Lawyers, 493 U.S. at 423-24

- 28 -
(rejecting argument by trial lawyers that boycott of court-appointed work was

justified to promote the social value of increasing the quality of representation);

FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 462-64 (1986) (refusing to

consider ethical policy of insuring proper dental care as a valid procompetitive

end); Board of Regents, 468 U.S. at 117 (rejecting justifications offered to

support a challenged restraint that do not promote competition as "inconsistent

with the basic policy of the Sherman Act"); National Soc'y of Prof'l Engineers,

435 U.S. at 695-96 (holding that policy goals such as protecting public safety and

promoting ethical behavior do not qualify as legitimate procompetitive objectives

unless they serve to "regulate and promote" competition); see also Areeda, supra,

¶ 1504, at 381 (courts should "not inquire whether the restraint promotes the

'public interest' but only whether it increases competition."). 14

The NCAA also contends that limiting one of the four available coaching

positions on a Division I basketball team to an entry level position will create

more balanced competition by barring some teams from hiring four experienced

coaches instead of three. However, the REC Rule contained no restrictions other

14
Similarly, the NCAA cannot be heard to argue that the REC Rule fosters
the amateurism that serves as the hallmark of NCAA competition. While courts
should afford the NCAA plenty of room under the antitrust laws to preserve the
amateur character of intercollegiate athletics, see Banks , 977 F.2d at 1089-93,
courts have only legitimized rules designed to ensure the amateur status of student
athletes, not coaches.

- 29 -
than salary designed to insure that the position would be filled by entry-level

applicants; it could be filled with experienced applicants. In addition, under the

REC Rule, schools can still pay restricted-earnings coaches more than $16,000

per year by hiring them for physical education or other teaching positions. In

fact, the evidence in the record tends to demonstrate that at least some schools

designated persons with many years of experience as the restricted-earnings

coach. The NCAA did not present any evidence showing that restricted-earnings

positions have been filled by entry-level applicants or that the rules will be

effective over time in accomplishing this goal. Nothing in the record suggests

that the salary limits for restricted-earnings coaches will be effective at creating

entry-level positions. Thus, the NCAA failed to present a triable issue of fact as

to whether preserving entry-level positions served a legitimate procompetitive end

of balancing competition.

2. Cost Reduction

The NCAA next advances the justification that the plan will cut costs.

However, cost-cutting by itself is not a valid procompetitive justification. If it

were, any group of competing buyers could agree on maximum prices. Lower

prices cannot justify a cartel's control of prices charged by suppliers, because the

cartel ultimately robs the suppliers of the normal fruits of their enterprises. See

Areeda, supra, ¶ 1504, at 379. Further, setting maximum prices reduces the

- 30 -
incentive among suppliers to improve their products. Likewise, in our case,

coaches have less incentive to improve their performance if their salaries are

capped. As the Supreme Court reiterated in Superior Court Trial Lawyers, 493

U.S. at 423, "the Sherman Act reflects a legislative judgment that ultimately

competition will produce not only lower prices, but also better goods and

services. . . This judgment recognizes that all elements of a bargain--quality,

service, safety, and durability--and not just the immediate cost, are favorably

affected by the free opportunity to select among alternative offers." (internal

quotations omitted).

The NCAA adopted the REC Rule because without it competition would

lead to higher prices. The REC Rule was proposed as a way to prevent Division I

schools from engaging in behavior the association termed "keeping up with the

Joneses," i.e., competing. However, the NCAA cannot argue that competition for

coaches is an evil because the Sherman Act "precludes inquiry into the question

whether competition is good or bad." National Soc'y of Prof'l Engineers, 435

U.S. at 695.

While increasing output, creating operating efficiencies, making a new

product available, enhancing product or service quality, and widening consumer

choice have been accepted by courts as justifications for otherwise

anticompetitive agreements, mere profitability or cost savings have not qualified

- 31 -
as a defense under the antitrust laws. See I ABA Section of Antitrust Law, supra,

at 66-67 (citing cases). The NCAA's cost containment justification is illegitimate

because the NCAA:

[I]mproperly assumes that antitrust law should not apply to condemn the
creation of market power in an input market. The exercise of market power
by a group of buyers virtually always results in lower costs to the buyers--a
consequence which arguably is beneficial to the members of the industry
and ultimately their consumers. If holding down costs by the exercise of
market power over suppliers, rather than just by increased efficiency, is a
procompetitive effect justifying joint conduct, then section 1 can never
apply to input markets or buyer cartels. That is not and cannot be the law.

Roberts, supra, at 2643. Reducing costs for member institutions, without more,

does not justify the anticompetitive effects of the REC Rule.

The NCAA argues that reducing costs can be considered a procompetitive

justification because doing so is necessary to maintain the existence of

competitive intercollegiate sports. Emphasizing the deficits many college sports

programs faced prior to the adoption of the REC Rule, the NCAA quotes with

approval language from the opinion in Hennessey to support its claim that

reducing costs serves as a procompetitive benefit:

Colleges with more successful programs, both competitively and
economically, were seen as taking advantage of their success by expanding
their programs, to the ultimate detriment of the whole system of
intercollegiate athletics. Financial pressures upon many members, not
merely to "catch up", but to "keep up," were beginning to threaten both the
competitive, and the amateur, nature of the programs, leading quite possibly
to abandonment by many. "Minor" and "minority" sports were viewed as
imperiled by concentration upon the "money makers," such as varsity
football and basketball.

- 32 -
 Bylaw 12-1 [the rule at issue in Hennessey] was, with other rules
adopted at the same time, intended to be an "economy measure". In this
sense it was both in design and effect one having commercial impact. But
the fundamental objective in mind was to preserve and foster competition
in intercollegiate athletics-by curtailing, as it were, potentially monopolistic
practices by the more powerful-and to reorient the programs into their
traditional role as amateur sports operating as part of the educational
process.

564 F.2d at 1153.

We are dubious that the goal of cost reductions can serve as a legally

sufficient justification for a buyers' agreement to fix prices even if such cost

reductions are necessary to save inefficient or unsuccessful competitors from

failure. Nevertheless, we need not consider whether cost reductions may have

been required to "save" intercollegiate athletics and whether such an objective

served as a legitimate procompetitive end because the NCAA presents no

evidence that limits on restricted-earning coaches' salaries would be successful in

reducing deficits, let alone that such reductions were necessary to save college

basketball. Moreover, the REC Rule does not equalize the overall amount of

money Division I schools are permitted to spend on their basketball programs.

There is no reason to think that the money saved by a school on the salary of a

restricted-earnings coach will not be put into another aspect of the school's

basketball program, such as equipment or even another coach's salary, thereby

increasing inequity in that area. Accord Board of Regents, 468 U.S. at 118-19

(rejecting NCAA's argument that television rights plan would increase

- 33 -
competitive equity among NCAA teams where the plan did not "regulate the

amount of money that any college may spend on its football program").

3. Maintaining Competitiveness

We note that the NCAA must be able to ensure some competitive equity

between member institutions in order to produce a marketable product: a "team

must try to establish itself as a winner, but it must not win so often and so

convincingly that the outcome will never be in doubt, or else there will be no

marketable 'competition.'" Michael Jay Kaplan, Annotation, Application of

Federal Antitrust Laws to Professional Sports, 18 A.L.R. Fed. 489 § 2(a) (1974).

The NCAA asserts that the REC Rule will help to maintain competitive equity by

preventing wealthier schools from placing a more experienced, higher-priced

coach in the position of restricted-earnings coach. The NCAA again cites

Hennessey to support its position, and again we find Hennessey to be

unpersuasive for the reasons previously articulated.

While the REC Rule will equalize the salaries paid to entry-level coaches in

Division I schools, it is not clear that the REC Rule will equalize the experience

level of such coaches. 15 Nowhere does the NCAA prove that the salary

15
For example, some more-experienced coaches may take restricted-
earnings coach positions with programs such as those at Duke or North Carolina,
despite the lower salary, because of the national prominence of those programs. In
fact, absent the REC Rule, the market might produce greater equity in coaching
talent, because a school with a less-prominent basketball program might be able
(continued...)

- 34 -
restrictions enhance competition, level an uneven playing field, or reduce

coaching inequities. Rather, the NCAA only presented evidence that the cost

reductions would be achieved in such a way so as to maintain without

"significantly altering," "adversely affecting," or "disturbing" the existing

competitive balance. The undisputed record reveals that the REC Rule is nothing

more than a cost-cutting measure and shows that the only consideration the

NCAA gave to competitive balance was simply to structure the rule so as not to

exacerbate competitive imbalance. Thus, on its face, the REC Rule is not directed

towards competitive balance nor is the nexus between the rule and a compelling

need to maintain competitive balance sufficiently clear on this record to withstand

a motion for summary judgment. 16

4. Wait and See

15
(...continued)
to entice a more-experienced coach away from a prominent program by offering a
higher salary.
16
Because we hold that the NCAA did not establish evidence of sufficient
procompetitive benefits, we need not address question of whether the plaintiffs
were able to show that comparable procompetitive benefits could be achieved
through viable, less anticompetitive means. See I ABA Section of Antitrust Law,
supra, at 66 (collecting cases); Areeda, supra , ¶ 1502, at 372 (if the defendant
proves procompetitive justifications, the plaintiff must demonstrate that less
restrictive means could have been used to achieve the same results to prevail
under the rule of reason analysis).

- 35 -
 In the alternative, the NCAA argues that even if evidence of the

procompetitive benefits of the REC Rule are not forthcoming at the moment, we

should follow the advice of the court in Hennessey and adopt a "wait and see"

approach to give the rule time to succeed. See 564 F.2d at 1153-54 (refusing to

place the burden on the NCAA to prove that the procompetitive benefits of the

challenged restraint in that case outweighed its negative effects because doing so

would "foreclose . . . any opportunity to build up experience on which the issue

ultimately could be judged"). However, we believe that the court in Hennessey

erred as a matter of law to the extent that the court tried to free the NCAA as the

defendant from its burden of showing that the procompetitive justifications for a

restraint on trade outweigh its anticompetitive effects. The Supreme Court in

Board of Regents made it clear that the NCAA still shoulders that burden, see 486

U.S. at 104, and we hold that the NCAA failed to provide sufficient evidence to

carry its burden in this case.

IV. Conclusion

For the reasons discussed above, we AFFIRM the district court's order

granting a permanent injunction barring the NCAA from reenacting compensation

limits such as those contained in the REC Rule based on its order granting

summary judgment to the plaintiffs on the issue of antitrust liability.

- 36 -