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Scandal in the NCAA

November 12, 2017

SCANDAL IN THE NCAA: A FIDUCIARY TALE

By: Andrew Escher, Volume 102 Staff Member

Common wisdom holds that sports bring people together. In circumstances as varied as a Texas high school at a Friday night football game or an entire country during the Olympics, athletics gives disparate groups of people reason to find common cause. But rarely does a group as noteworthy as this assemble for the sake of college athletics: former Secretary of State Condoleezza Rice, ex-Chairman of the Joint Chiefs of Staff General Martin Dempsey, and former White House Counsel Kathryn Ruemmler will work alongside basketball greats Grant Hill and David Robinson on the National Collegiate Athletic Association’s (NCAA) newly-formed Commission on College Basketball.[1] However, this Commission exists not to celebrate the achievements of student athletes, but to investigate them.[2]

The Federal Bureau of Investigation (FBI) announced last September that over the course of two years it had used confidential informants, wiretaps, and undercover surveillance to gather evidence of a massive scheme of influence peddling and corruption centered on college basketball.[3] The FBI brought charges of bribery, mail and wire fraud, and racketeering against a coterie of basketball coaches, financial advisors, and even the multinational sportswear corporation Adidas.[4]

The schools involved have handed out suspensions to the coaches[5] and the NCAA has assembled its Commission to investigate,[6] but the student-athletes themselves have been largely quiet in the matter. Do the student-athletes, some of whom themselves received bribes, have a cause of action against the coaches they trusted who “steered” them into the schemes of manipulating financial advisors? This Post will analyze that question, first by summarizing briefly the FBI investigation and its findings, and next by discussing one possible cause of action available to the affected student-athletes: breach of fiduciary duty.

Money goes to the heart of this corruption scandal. Players in the National Basketball Association (NBA) earn multi-million dollar contracts, colleges and universities rake in fortunes through the sale of merchandising agreements and ticket sales, and the NCAA receives millions each year from television fees.[7] Conspicuously absent from this list are the student-athletes themselves, prohibited by their amateur status from accepting payment beyond what they receive in the form of scholarships.[8] With undeniable future earning potential and little cash on hand, these individuals are obvious targets for those seeking to profit from their constrained circumstances.

The scheme to monetize relationships with these players is explained in the recent FBI complaints. Financial advisors and managers offered bribes to college coaches who agreed in turn to pressure the student-athletes they coached into retaining the advisors and managers upon becoming professionals.[9] In many instances, money was given to student-athletes or their families in an attempt to influence them.[10]

This arrangement was successful for a number of reasons: first among them, the trust the student-athletes placed in their coaches; and second, the allure to financial advisors of securing the lucrative position managing the earnings of a future NBA player.[11] While such a scheme is illegal—as the current FBI charges demonstrate—there is still a question as to whether the players themselves will be able to recover anything in the wake of these accusations.

Without going through a full court proceeding, it is impossible to definitively state whether any particular claim would be successful. However, using the facts in the FBI complaints, it is possible to construct a situation where the student-athlete would be able to recover under a theory of breach of fiduciary duty. To show a breach of fiduciary duty, the player would have to show: (1) proof of a fiduciary relationship and duty, (2) breach of that fiduciary duty, and (3) damages directly caused by the defendant’s breach.[12]

A fiduciary relationship is typically formed in two ways: first, by the legal relations of the parties involved.[13] Examples of this include the relationship of doctors to their patients and directors to corporations of which they serve on the board. And second, a fiduciary relationship may be formed through the unique factual circumstances of a case. One court described this manner of establishing a fiduciary relationship as

“[T]he acting of one person for another; the having and the exercising of influence over one person by another; the reposing of confidence by one person in another; the dominance of one person by another; the inequality of the parties; and the dependence of one person upon another. In addition, courts have considered weakness of age, mental strength, business intelligence, knowledge of the facts involved or other conditions giving to one an advantage over the other.”[14]

Many, if not all, of these factors are present in an archetypal player-coach relationship. The coach schedules where the player will be and when, controls how much playing time the player receives, and determines that player’s role on the team. The player by contrast cannot help but do what the coach asks of him for fear of jeopardizing his standing within the team. Likewise, he depends on the coach for the opportunity to play and advertise his talent to prospective NBA teams. It would be difficult to dispute that the coach is dominant in this relationship.[15]

The additional factors courts will consider are present too. Student-athletes are nearly all young, a fact the financial advisors attempted to turn to their advantage. As one stated, “I’m telling you, they look like men, but they’re kids.”[16] Likewise, the student-athletes, though gifted basketball players, lack business knowledge, relying instead on those they trust to make financial and professional decisions for them. The financial advisors charged would themselves agree on this point: the FBI recorded one of them declaring, “college athletes are trying to place their trust in people” and “all you have in this business is trust.”[17] With these facts, there is a plausible basis for a court to find that a fiduciary relationship exists, and assuming one is found a court would next look to whether the coach had breached a duty he owed to the player.

Fiduciary duties can be breached by self-dealing, failing to act in the other party’s best interest, failing to disclose information, and by giving inappropriate advice.[18] In one representative instance, the coach introduced the player to a financial advisor, telling the player “whatever he [sic] good with, I’m [] with, I trust him 100%.”[19] The coach had in fact received bribes to set up the meeting, and when the player left accepted another $15,000 in bribes.[20] These events alone would seem to provide evidence of a breach of the coach’s fiduciary duty, and the player in this situation seems to have a strong argument.

Should a court find a fiduciary relationship existed and that a duty was breached, the player would need to prove the final element: that the coaches directly caused particular damages. In this context, the causation analysis is a fact-specific determination to be made by a jury.[21] Its determination would depend on the totality of the circumstances and involve a factual analysis at a level of detail not present in the FBI complaints, but conceivably a jury could conclude the coaches’ actions caused damages such as the loss of any scholarship funding or losses of future earning potential—though the latter would be more difficult to prove due to the inherent difficulty of assessing the future success of professional basketball players.[22]

The affected student-athletes seem able to successfully plead the necessary elements of a claim for breach of fiduciary duty against the coaches involved. First, the player-coach relationship entails unequal power dynamics between savvy coaches and unversed players, and is characterized by a level of trust and confidence that unscrupulous coaches were able to exploit, factors which appear to form the basis for a fact-specific fiduciary relationship. Second, the coaches breached the duties of that relationship by “steering” the players into dealings that were acknowledged to be illegal, and profiting from the bribes they received. Finally, the players can argue that the coaches’ actions caused them to lose their scholarships and future earning potential. Based on one analysis, the value of a Division 1 basketball scholarship is approximately $120,000, so a potential claim could be worth up to $480,000—hardly the millions the players hoped for, but nonetheless worth pursuing.[23]

  1. National College Athletic Association, NCAA Commission On College Basketball Charter: As of October 2017 (2017). ↑
  2. Statement by the Commission Chairwoman, Condoleezza Rice (2017). ↑
  3. U.S. Attorney’s Office, S. Dist. N.Y., U.S. Attorney Announces The Arrest Of 10 Individuals, Including Four Division I Coaches, For College Basketball Fraud And Corruption Schemes (2017), https://www.justice.gov/usao-sdny/pr/us-attorney-announces-arrest-10-individuals-including-four-division-i-coaches-college. For the Complaints filed against the Defendants, see Complaint, United States v. Evans, 17 Mag. 7119 (2017), https://www.justice.gov/usao-sdny/press-release/file/999011/download; Complaint, United States v. Gatto, 17 Mag. 7118 (2017), https://www.justice.gov/usao-sdny/press-release/file/999001/download; Complaint, United States v. Person, 17 Mag. 7120 (2017), https://www.justice.gov/usao-sdny/press-release/file/999006/download. ↑
  4. U.S. Attorney’s Office, supra note 3 (listing charges against the Defendants); see also Conspiracy to Commit Offense or to Defraud United States, 18 U.S.C. § 371 (2012); Frauds and Swindles, 18 U.S.C. § 1341 (2012); Fraud by Wire, Radio, or Television, 18 U.S.C. § 1343 (2012); Theft or Bribery Concerning Programs Receiving Federal Funds, 18 U.S.C. § 666 (2012). ↑
  5. Marc Tracy, Rick Pitino Is Out at Louisville Amid F.B.I. Investigation, N.Y. Times, Sept. 27, 2017, https://www.nytimes.com/2017/09/27/sports/rick-pitino-fired.html. ↑
  6. Statement by the Commission Chairwoman, Condoleezza Rice (2017). ↑
  7. Revenue, NCAA, http://www.ncaa.org/about/resources/finances/revenue (last visited Oct. 24, 2017) (“NCAA revenue was $871.6 million, most of which came from the rights agreement with Turner/CBS Sports”); see also Cork Gaines, The Highest-Paid Public Employee In 39 US States Is Either A Football Or Men’s Basketball Coach, Business Insider (Sept. 22, 2016, 2:01 PM)

    http://www.businessinsider.com/us-states-highest-paid-public-employee-college-coach-2016-9/#10-pennsylvania–james-franklin-44-million-1 (listing highest paid state employees, many of whom coach college football or basketball); see generally Bud Elliot, Economists Think 5-Star College Football Recruits Could Be Worth $500K Annually, SBNation (Nov. 1, 2016, 11:06 AM), https://www.sbnation.com/college-football-recruiting/2016/11/1/13418518/impact-recruit-college-football-team-performance-study-money-playoff (describing the substantial economic impact of successfully recruiting highly ranked high school football players). ↑

  8. NCAA, NCAA Division I Manual: August 2016–17 53 (2016) (“Only an amateur student-athlete is eligible for intercollegiate athletics participation in particular sport.”). ↑
  9. U.S. Attorney’s Office, supra note 3 (describing the general scheme of alleged corruption). ↑
  10. Id. (describing the funneling of bribe payments to players). ↑
  11. Jim Forsythe, Financial adviser sentenced to four years for bilking NBA’s Tim Duncan, Reuters, (June 28, 2017, 3:03 PM), https://www.reuters.com/article/us-nba-duncan-adviser/financial-adviser-sentenced-to-four-years-for-bilking-nbas-tim-duncan-idUSKBN19J2PZ (detailing a financial advisor’s fraud upon an NBA player). See generally Bud Elliot, Economists Think 5-Star College Football Recruits Could Be Worth $500K Annually, SBNation (Nov. 1, 2016, 11:06 AM), https://www.sbnation.com/college-football-recruiting/2016/11/1/13418518/impact-recruit-college-football-team-performance-study-money-playoff (describing the substantial economic impact of successfully recruiting highly ranked high school football players). ↑
  12. E.g., Deblinger v. Sani-Pine Prods. Co., 107 A.D.3d 659, 660 (N.Y. App. Div. 2013). ↑
  13. Robert A. Kutcher, Breach of Fiduciary Duties 3, in Business Torts Litigation (David A. Soley et al. eds., 2005) http://apps.americanbar.org/abastore/products/books/abstracts/5310344_chap1_abs.pdf. ↑
  14. First Bank of Wakeeney v. Moden, 681 P.2d 11, 13 (1984). ↑
  15. Brian Witt, Unbreakable Bonds: The Player-Coach Relationship, NBA, http://www.nba.com/warriors/news/unbreakable-bonds-player-coach-relationship/ (last visited Oct. 24, 2017) (detailing the strength and importance of the relationships between members of the Golden State Warriors and their college coaches). ↑
  16. Complaint at 47, United States v. Evans, 17 Mag. 7119 (2017). ↑
  17. Id. at 24. ↑
  18. Michael W. Stockham & Mackenzie S. Wallace, Fiduciary Duty Litigation and Burden Shifting, American Bar Association, (March 4, 2014), http://apps.americanbar.org/litigation/committees/trialevidence/articles/winter2014-0314-fiduciary-duty-litigation-burden-shifting.html. ↑
  19. Complaint at 24, United States v. Person, 17 Mag. 7120 (2017). ↑
  20. Id. at 24–25. ↑
  21. Stockham & Wallace supra note 18. ↑
  22. NCAA, supra note 8 at 40 (“Prospective or enrolled student-athletes found to be in violation of the provisions of this regulation shall be ineligible for further intercollegiate competition.”). ↑
  23. Jay Weiner & Steve Berkowitz, USA Today Analysis Finds $120K Value in Men’s Basketball Scholarship, USA Today (Mar. 30, 2011 2:48PM), https://usatoday30.usatoday.com/sports/college/mensbasketball/2011-03-29-scholarship-worth-final-four_N.htm (“[A] typical men’s basketball player for a Division I program receives at least $120,000 annually in goods, services and future earnings.”). ↑
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