Nobody Puts Baby in a Corner: Why the NLRB Decision is a Far Cry From Taking Down the NCAA

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The Chicago regional office of the National Labor Relations Board decided in favor of Northwestern football players’ right to unionize by saying scholarship players are “employees” under the National Labor Relations Act. While this has been considered a Midway-esque[i] victory in what could be a shift in the landscape of college athletics under the NCAA banner, we are still far off from realizing a college athlete union. John Adam, a lawyer for the College Athletes Players Association, calls the decision a “complete victory” for the union, which is something we’ve heard before in NCAA issues. As Maurice Clarett can confirm, an initial decision involving NCAA/antitrust issues is by no means guaranteed to survive an appeal.[ii]

Standing in the way of scholarship athletes and “complete victory” are: (1) State-labor laws, (2) an appeal by Northwestern (3) Title IX, (4) the U.S. Tax Code, and of course, (5) the NCAA itself.  Before you join Mr. Adam in celebrating the demise of the current NCAA model, consider the difficult road ahead and the possibility that the Board’s decision will be overturned or severely limited.

THE DECISION[iii]

According to the NLRB ruling, “players receiving scholarships to perform football-related services for the Employer under a contract for hire in return for compensation are subject to the Employer’s control and are therefore employees within the meaning of the Act.” The Board based this decision on several factors, including: 1) the added restrictions on football players to follow rules and procedures not forced upon the general student body; 2) the coaching/athletic staff’s control over the players; 3) player’s time commitment to the sport (which is more than a full-time job); and 4) recruitment based on athletic and not academic prowess.

While considering the first two points, the Board did not care that the NCAA made several of the rules and restrictions enforced by the employer (Northwestern).[iv] The findings show that the student-athletes’ time commitment to the sport, regardless of NCAA limits on countable athletically-related activities (20 hours per week in season), reached as high as 40-50 hours per week (if the NCAA doesn’t look at this and somehow find a violation, I’ll be shocked). This amount of time is easily more than they spent in the classroom, reinforcing the idea that it is impossible to call these student-athletes primarily students. The Board continued to describe that since football ability is the first step in recruiting, that academic prowess and everything else basically takes a back seat in the process, there can be no argument that the primary factor in Northwestern bringing these prospective student-athletes on board is what they bring to Wildcats football. In this 24-page decision, the Regional Board has inadvertently raised some pressing issues that could equally change college athletics, for good or bad.

ISSUE #1: A LIMITED VICTORY

This is not an across-the-board win for scholarship athletes, or even scholarship football athletes. This decision only affects Northwestern football, although it does set up fairly identical precedent for private schools (employers) that offer football across the country.  In most states, government employees and their right to unionize are covered by state law as opposed to the National Labor Relations Act.  In some cases government employees are prohibited from unionizing.  As much as I’d enjoy seeing Alabama taken down a peg, this creates a huge recruiting advantage for private schools, since they could offer students the benefits tied to being part of a union, including the potential for payment. NCAA rules, like it or not, were in many cases put in place to create a level playing field, not take advantage of student-athletes. This decision, if upheld, could go a long way to taking a shotgun point-blank to an already less than level playing field in recruiting.

ISSUE #2: 20 U.S.C.§1681 

SAY HELLO TO TITLE IX. If football student-athletes are allowed to unionize and reap those benefits, good luck explaining to the women’s soccer team why they aren’t allowed to do the same. As of now, the identified bargaining unit is “all football players receiving football grant-in-aid scholarship and not having exhausted their playing eligibility.” We are looking at a potentially massive blow-up between two core principles of American law and equity: Labor Law vs. Title IX (place your bets). Title IX (as in Title IX of the Civil Rights Act of 1964) prevents discrimination based on sex in education programs and activities that receive federal financial assistance (that includes college athletics). Schools could be faced with a labor suit, or a Title IX suit. If a school is forced to not only pay its athletes, but also cover medical benefits, disability, pension, worker’s compensation etc. not just for football but for all sports in which scholarships are given out, at what point does a university decide that the financial costs of an athletics program outweigh any recruiting (speaking about all students now) advantage.  Let’s remember, most athletics departments already lose money on a net basis. Henry Bienen, a former president of Northwestern, alluded to the fact that institutions could abandon the scholarship model altogether:  “In the 1950s, the Ivies had some of the highest-ranked football teams in the country…but they’ve given up a certain model of sports.”  He added that under certain economic conditions, many universities may also cease to give out scholarships.[v]

ISSUE #3: 26 U.S.C. §117

The United States Tax Code is a particularly difficult read, and fantastic to put you asleep quickly. For our purposes, parts of 26 U.S. Code § 117 will suffice:

Gross income does not include any amount received as a qualified scholarship by an individual who is a candidate for a degree at an educational organization described in section 170 (b)(1)(A)(ii).

Per this section, taxable income doesn’t include scholarships from educational organizations. The Board determined that players’ grant-in-aid scholarships are not financial aid, but compensation for athletic services performed. This section of the Tax Code goes on to say:

Except as provided in paragraph (2), subsections (a) [general rule listed above] and (d) shall not apply to that portion of any amount received which represents payment for teaching, research, or other services by the student required as a condition for receiving the qualified scholarship or qualified tuition reduction.

While this may not change anything, the NLRB decision has opened a door that could bring tax liability to student-athletes based on their scholarships. The Regional Board just came out and said that football scholarships are not financial aid, but compensation for services performed (playing football). Any football student-athletes that embrace this unionization also embrace being considered an employee. This could create a loophole to the qualified scholarship exception that allows for scholarship students to not pay taxes on the thousands of dollars they receive to attend college.

Although Revenue Ruling 1977-263 specifically says that athletic scholarships are excludable from gross income, the ruling is based at least in part on the premise that these scholarships are “awarded to students by a university that expects but does not require the students to participate in a particular sport, requires no particular activity in lieu of participation, and does not cancel the scholarship if the student cannot participate.” The problem with this ruling is that the NCAA rules have changed; it is permissible to remove an athletic scholarship if a student-athlete voluntarily withdraws from a sport.[vi]

An interested party could notice that the current state of collegiate athletics participation correlates more with the facts in the decision of the NLRB than with those used in the reasoning of the revenue ruling. While these football student-athletes would be able to receive benefits as an employee, the NLRB ruling has offered a definition that has a chance to make student-athletes  alsopay taxes as an employee. As beneficial as receiving employee benefits might be, student-athletes would be facing a hefty tax bill (my math is a bit rusty, but anywhere between 1-10 thousand dollars on a 15-60 thousand dollar scholarship) if the IRS decided to have a change of heart on athletic scholarships.

ISSUE #4: BACKING THE NCAA INTO A CORNER

I doubt I’m the only one that sees this decision as a play that backs the besieged NCAA into an uncomfortable position. A union, and its collectively bargained “benefits,” would throw a wrench into a few of the NCAA bylaws as they are currently written. The problem with trapping a wounded animal is that there is no telling what its response will be, or how (irrationally) it may act. This decision clearly names Northwestern the employer, not the NCAA, and while it is a violation of labor law to discriminate based on any union affiliation/involvement, that only applies to the employer. What is to stop the NCAA from deciding that it is not terribly partial to this NLRB decision, and just declare any unionized student-athlete ineligible, cutting off the problem at the source? Being outside of the collective bargaining unit, the NLRA likely does not apply to this particular third party,[vii] so for all the rights and benefits players may be able to realize, their purpose could be frustrated by one simple NCAA rule change.

THE ROAD AHEAD

This brings us up to speed with the next step: the Northwestern appeal of the NLRB decision. Facing the possibility of having to pay additional, and likely significant, benefits to 85 more people on a yearly basis, any institution, college or otherwise, will probably do whatever it possibly can to avoid incurring such extra costs. Currently, the players at Northwestern with remaining eligibility have the opportunity to fill out union cards, needing 30% of the football team’s scholarship athletes to unionize, in order to enter into negotiations with the employer. The NLRB could either order a stay on this election or impound the completed ballots until the appeal has been decided.

While seemingly a surprise decision from the NLRB, on a macro level this decision should surprise nobody.  The NLRB is, by its very nature and from its inception, a pro-labor governmental body with the authority to investigate, try, hear and rule on issues involving labor law.  The current Board is a particularly liberal version, as evidenced by the large controversy over President Obama’s attempted appointments, so a pro labor decision should not have been unsuspected. [viii]

Finally, it is important to remember that, even in collective bargaining, employers are not bound to make any particular concessions on salary or other terms of employment.  However, union members are bound to pay their union dues, meaning the only people guaranteed to make any money off of this arrangement are the union, and its leadership.