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New NCAA Basketball Rules Create Compliance Challenges for Division I Universities

Client Alert

Author: Callan G. Stein

8/14/2018
New NCAA Basketball Rules Create Compliance Challenges for Division I Universities

On August 8, the NCAA announced a number of significant changes to its Division I college basketball bylaws. These changes — which come in response to the 2017 federal criminal investigation alleging fraud in college basketball — alter some of the fundamental principles that underlie collegiate athletics, and reflect a major shift in policy to prioritize flexibility for student-athletes while increasing accountability for universities. It remains to be seen how (and in some cases when) these new rules will be interpreted and implemented. But it appears very likely that these rule changes, coupled with the NCAA’s shifting priorities in the wake of the federal criminal probe, will have major ramifications for universities and their administrators.

Below we discuss four of the most significant rule changes and suggest how Division I basketball schools and administrators should address them.

Increased Player Contact With Agents

Arguably the rules’ biggest change is to vastly increase the permissible contact professional sports agents can have with high school and collegiate athletes. Under the new rules, college basketball players can be represented by an agent after the conclusion of any basketball season if they request an evaluation from the NBA Undergraduate Advisory Board. In addition, the new rules provide that, if and when the NBA and NBA Players Association decide to again allow high school students to enter the NBA draft, high school senior basketball prospects who have been designated as “elite” by USA Basketball may also be represented by agents.

The new rules place significant restrictions on agents and how they interact with players. First, the rules require that all player-agent agreements be in writing, disclosed to the NCAA (for high school students) or the player’s school (for students in college), and terminate when the student enrolls in or returns to school. Second, the rules set forth a number of detailed requirements concerning what agents can and cannot pay for. For example, agents are permitted to pay for meals and transportation for students and their families, but those expenses cannot be related to the agent selection process and they must be made where the student lives or attends school, and cannot cause the student to miss class.

The end results of these changes are twofold. First, there will be more agents interacting with more college basketball players and teams. Second, those interactions, though generally permissible, will be subject to a number of new technical requirements. The task of monitoring these new player-agent relationships and ensuring their compliance with the requirements will fall to the universities and their compliance departments. This will be no easy task. Universities should consider implementing a system to track player-agent relationships to ensure:

  • the relationship is reduced to writing and filed with the school and/or NCAA
  • the relationship terminates at the appropriate time
  • the agent is not causing the student to miss class
  • the student is not receiving improper benefits from the agent.

As part of this system, universities should consider protocols requiring their basketball players to disclose their agent relationships, as well as any benefits they or their families receive from an agent (e.g., meals, transportation, etc.). Universities should also institute a mechanism for regularly checking on basketball players known to be represented and for investigating any information disclosed or received that plausibly suggests an improper player-agent relationship exists or an improper benefit was provided.

Reporting of Outside Income by Coaches and Athletic Staff

The new rules require all college basketball coaches and members of the athletic staff to report to the university all athletic-related income of more than $600 from any source outside of the school. The NCAA’s stated purpose in passing this rule is to create transparency between universities and outside entities. For example, coaches who earn income from television or radio programs will be required to disclose those amounts. This new rule will likewise require disclosure of endorsement deals or consulting contracts with apparel companies, among many other outside sources of income.

This rule change creates yet another monitoring and compliance obligation for schools. Similar to player-agent relationships, universities should consider implementing protocols for the disclosure and tracking of outside payments to coaches and athletic staff. Universities should require all coaches and athletic staff members to periodically certify that they have disclosed all outside income greater than $600. To ensure that coaches and athletic staff are, in fact, properly disclosing all payments, schools should also set up a procedure for individuals to report suspected undisclosed payments (e.g., a hotline, anonymous email address, etc.).

Universities should put in place a procedure for investigating any allegations of undisclosed payments, including the use of external legal counsel to confidentially verify or disprove such allegations. If necessary, schools should properly report any violations to the NCAA in a manner designed to minimize university liability and facilitate a quick resolution.

Requiring University Cooperation in All Investigations

The NCAA made a significant procedural change in the new rules by requiring all presidents and athletic staff members at Division I basketball schools, as conditions of their employment, to contractually commit to providing full cooperation to the NCAA during any investigation or infraction process. This means that all university presidents and athletic staff members must:

  • report all violations in a timely manner
  • share all knowledge and documents requested in a timely manner
  • provide access to all electronic devices, social media and other technology
  • maintain confidentiality.

In essence, this cooperation requirement gives the NCAA a de facto “subpoena power,” which it did not previously have (and which it has claimed has impeded its ability to investigate violations).

The practical implications of this new rule are hugely significant for universities and their individual employees because the NCAA has stated explicitly that it will consider a lack of cooperation by a university or individual to be an admission of a violation. For this reason, universities should create and implement policies that ensure they are in a position to satisfy their cooperation obligations if and when the NCAA demands.

One way to do this is to implement policies that clearly define the steps that must be taken whenever a school learns of a pending NCAA investigation. Even if the NCAA has not yet requested cooperation, universities should have a procedure for preserving and gathering all relevant information (not unlike a litigation hold memo, which is used to avoid evidence spoliation in civil litigation). Having clear policies to ensure critical information is not inadvertently lost is particularly important given the new rule’s focus on nontraditional information sources, such as electronically stored information on university-issued electronic devices (cell phones, iPads, etc.) and social media accounts (which could be highly relevant to, for example, an investigation into recruiting violations).

To help guide this procedure (and maintain confidentiality to the greatest possible extent), universities should consider engaging external legal counsel to act as the point person for both the internal investigation into the potential violation — i.e., preserving, gathering and reviewing all documents and interviewing potential witnesses — and communicating with the NCAA if/when it demands cooperation — i.e., evaluating the potential liability for the school or individual administrators, determining what documents and information need to be disclosed, and negotiating a final resolution.

Personal Accountability for University Presidents and Chancellors

In addition to creating harsher and longer penalties for schools and coaches for rules violations, the rule changes also increase the number of university employees the NCAA will hold personally accountable for athletic department violations. Under the new rules, university presidents and chancellors at Division I basketball schools will be held personally accountable for violations by their athletic programs. Presidents and chancellors are now required — along with athletic staff members — to personally affirm that their athletic programs meet all monitoring and compliance obligations, which are required for postseason appearances.

The primary importance of this rule change lies in what it represents. Perhaps more than any other change, this rule change reflects the NCAA’s renewed dedication to identifying and ferreting out alleged fraud in college basketball and its commitment to imposing meaningful punishments on individuals who are accountable for institutional violations. This approach to individual accountability echoes that employed by the Department of Justice in recent years to prosecute individuals for corporate wrongdoing.

It remains to be seen the extent to which the NCAA will use these certifications by university presidents and chancellors to seek sanctions against them for their schools’ violations, but universities would be wise to take these consequences into consideration when deciding whether and how to investigate potential infractions. In particular, the possibility that a university president or chancellor could have personal liability for a violation creates a strong incentive for universities to engage external legal counsel to conduct internal investigations into possible violations. Utilizing external counsel mitigates many of the conflict of interest risks that could exist if the investigation were to be conducted by an individual employed by the university’s legal department. External investigations by external counsel also have the benefit of increased credibility by appearing less encumbered by university hierarchy and politics, especially when a chief administrator, like the president or chancellor, may be implicated. Lastly, when an internal investigation does reveal potential exposure for a university president or chancellor, external legal counsel will be in a better position to evaluate how those individuals’ interests are aligned with the university and whether it would be in the parties’ best interest to get them separate legal counsel.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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