[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
               SPORTS AGENT RESPONSIBILITY AND TRUST ACT
=======================================================================


                                HEARING

                               before the

                            SUBCOMMITTEE ON
                COMMERCE, TRADE, AND CONSUMER PROTECTION

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   on

                               H.R. 4701

                               __________

                              JUNE 5, 2002

                               __________

                           Serial No. 107-125

                               __________

      Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________









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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
RICHARD BURR, North Carolina         BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
GREG GANSKE, Iowa                    BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming               BART STUPAK, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           TOM SAWYER, Ohio
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES ``CHIP'' PICKERING,          GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
TOM DAVIS, Virginia                  THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee                 BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland     LOIS CAPPS, California
STEVE BUYER, Indiana                 MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California        CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire       JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

        Subcommittee on Commerce, Trade, and Consumer Protection

                    CLIFF STEARNS, Florida, Chairman

FRED UPTON, Michigan                 EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 DIANA DeGETTE, Colorado
  Vice Chairman                      LOIS CAPPS, California
ED WHITFIELD, Kentucky               MICHAEL F. DOYLE, Pennsylvania
BARBARA CUBIN, Wyoming               CHRISTOPHER JOHN, Louisiana
JOHN SHIMKUS, Illinois               JANE HARMAN, California
JOHN B. SHADEGG, Arizona             HENRY A. WAXMAN, California
ED BRYANT, Tennessee                 EDWARD J. MARKEY, Massachusetts
GEORGE RADANOVICH, California        BART GORDON, Tennessee
CHARLES F. BASS, New Hampshire       PETER DEUTSCH, Florida
JOSEPH R. PITTS, Pennsylvania        BOBBY L. RUSH, Illinois
MARY BONO, California                ANNA G. ESHOO, California
GREG WALDEN, Oregon                  JOHN D. DINGELL, Michigan,
LEE TERRY, Nebraska                    (Ex Officio)
ERNIE FLETCHER, Kentucky
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)











                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Beales, Howard, Director, Bureau of Consumer Protection, 
      Federal Trade Commission...................................    19
    Donnelly, James F. ``Boots,'' Athletic Director, Middle 
      Tennessee State University.................................    24
    Osborne, Hon. Tom, a Representative in Congress from the 
      State of Nebraska..........................................     6
    Saum, William S., Director of Agent, Gambling and Amateurism 
      Activities, National Collegiate Athletic Association.......    28

                                 (iii)










               SPORTS AGENT RESPONSIBILITY AND TRUST ACT

                              ----------                              


                        WEDNESDAY, JUNE 5, 2002

              House of Representatives,    
              Committee on Energy and Commerce,    
                       Subcommittee on Commerce, Trade,    
                                   and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2322 Rayburn House Office Building, Hon. Cliff Stearns 
(chairman) presiding.
    Members present: Representatives Stearns, Shadegg, Towns, 
DeGette, Capps, and Gordon.
    Staff present: Brian McCullough, majority counsel; Ramsen 
Betfarhad, policy coordinator; and Will Carty, legislative 
clerk.
    Mr. Stearns. Good morning. The Subcommittee on Commerce, 
Trade, and Consumer Protection will convene.
    We will receive now testimony on H.R. 4701, the Sports 
Agent Responsibility and Trust Act.
    My good friend, the gentleman from Tennessee, Mr. Gordon, 
introduced the legislation to address problems associated with 
unscrupulous sports agents that use deceptive tactics to sign 
collegiate athletes to contracts. I am pleased to be a co-
sponsor of the legislation, because I think H.R. 4701 addresses 
a very significant problem where the Federal Government can and 
should play a constructive role.
    Sports agents provide a valuable service to their athlete 
clients. This legislation is not directed at the legitimate 
professionals who abide by the rules. This legislation is 
directed at those individuals who do not follow the rules and 
willingly jeopardize the careers of collegiate athletes and 
their school's program.
    Today's witnesses include our colleague from Nebraska, who 
also co-sponsored H.R. 4701, Mr. Osborne from Nebraska. The 
distinguished former coach of the University of Nebraska's 
football team that won three national championships under his 
tenure can elaborate on the problems the legislation seeks to 
address.
    I am also glad to see Mr. Saum from the NCAA has returned 
to discuss this issue that was briefly touched upon at our 
previous sports hearing. I am pleased to see that any 
differences of opinion have been resolved and that the NCAA is 
now supportive of the legislation.
    Given the enormous contracts and signing bonuses of today's 
elite professional athletes, it is not surprising that an 
element of society will do anything to court promising 
collegiate athletes with the hope of being their agent and 
riding their coattails to future riches.
    Talented collegiate athletes that hold even the slightest 
promise of professional stardom are targeted by these 
individuals. Unfortunately, odds are against most collegiate 
athletes reaching the professional ranks and the accompanying 
fame and fortune.
    Instead, what is left in the wake of some of the purported 
agents' activities are all too often athletes who have lost 
their collegiate eligibility and the schools left to deal with 
possible violations. And let us be clear: the consequences for 
the athlete and the school can be serious and have lasting 
effect.
    Sanctions for violations can include the return of post-
season appearance money, forfeiture of games played with 
ineligible athletes, loss of scholarships, and ban on televised 
games. These are the rules and the penalties the schools have 
imposed upon themselves, and I understand why they exist. Yet 
despite the stiff penalties for the school and the athlete, the 
repercussions for the perpetrator range from minimal to 
nonexistence.
    Because the States recognize this problem, many have 
enacted laws to curb the abuses. Unfortunately, the patchwork 
of varying laws is not currently sufficient to deal with this 
problem. While progress is being made by many States to enact 
the Uniform Athlete Agent Act, it can only be a true 
countermeasure once all the States have enacted it.
    Currently, only 16 States--my home State of Florida is 
included--have taken that step. And while another 12 States 
have introduced the legislation, over a dozen States remain 
without any law to address this problem.
    H.R. 4701 will provide an additional remedy for the States 
that already have an existing athlete agent law. More 
significantly, it will provide a new enforcement mechanism at 
the Federal and State level where none currently exists. State 
attorneys general are given the authority to bring civil action 
in Federal district court.
    The FTC has all its available powers and authority to bring 
action against a violator under the legislation, including the 
ability to fine a violator up to the maximum of $11,000 per 
violation per day and to seek restitution to the injured.
    It is clear that Federal legislation is required in order 
to provide the State attorneys general with the authority to 
bring action under a Federal statute. My colleagues, what is 
not clear to me entirely is whether the Federal Trade 
Commission requires legislation to enunciate certain conduct as 
unfair, deceptive, or if its existing authority under Section 5 
already accords it the necessary authority to bring action 
against violators.
    So I look forward to comments of our witnesses today and 
thank them for their participation.
    With that, my distinguished colleague from New York, the 
ranking member, Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman, and I would 
also like to thank you for holding this hearing. As an original 
co-sponsor of the bill, I am very pleased that, in our previous 
sports hearings, my friend from Tennessee, Bart Gordon, was 
able to push this piece of legislation forward. I have heard of 
the horror stories out there and realize that something needs 
to be done.
    This legislation is a significant step in the right 
direction. It not only protects young people, who seemingly 
need representation at a younger age every day, but also 
ensures that bad actors in the sports agent business are held 
accountable when they illegally solicit those whom they hope to 
one day represent. The bill would create a Better Business 
Bureau for agents, through which amateur athletes and their 
families could file complaints and gain recompense from those 
who do harm to their careers.
    I would like to make it clear not all sports agents are bad 
actors, and I hope that those agents who play by the rules and 
who represent their clients ethically will come forward and 
support this legislation. I also hope that all of my colleagues 
support this bill, and that we can mark this bill up for 
consideration by the full committee as early as possible.
    Let us face it, something has to be done, and it has to be 
done now.
    I yield back the balance of my time, and I look forward to 
hearing from the witnesses and, from of course, my colleague, 
Mr. Osborne, who has been very, very involved in these issues 
throughout the years. On that note, I yield back.
    Mr. Stearns. I thank the gentleman, and now we will 
recognize the author of the bill, Mr. Gordon from Tennessee.
    Mr. Gordon. Thank you, Mr. Chairman, and also thank you 
very much for not only co-sponsoring but for giving this a 
prompt hearing. You certainly have been cooperative, and I do 
appreciate that.
    Our hearing today, as our chairman said, is on H.R. 4701, 
the Sports Agent Responsibility and Trust Act, or SPARTA. I 
appreciate the support of so many folks here that have made 
this possible.
    First, I want to take a moment to introduce one of the 
witnesses that we have today. He is a friend of mine from my 
district and also my alma mater. Coach Boots Donnelly is our 
former successful football coach at MTSU and now our athletic 
director, and I appreciate Coach Donnelly taking the time to 
come up here and being part of this and bringing some real-
world advice and information to this hearing.
    I also want to thank my distinguished colleague, 
Representative Tom Osborne from Nebraska, for his support in 
putting this legislation together. I have been working on the 
problem of predatory sports agents since 1996 when a friend and 
constituent of mine, Coach Ken Ship, came to see me about the 
need for uniform Federal law to protect kids from unscrupulous 
sports agents.
    The agent problem has only grown worse since 1996. With 
professional signing bonuses in the millions, it has become 
open season on our young men and women. Agents hoping to cash 
in on the next NFL or WNBA or NBA star will promise anything to 
student athletes with even a remote chance of playing 
professional sports to get them to end their college careers 
and sign with them so they can get a piece of the potential 
windfall.
    Agents offer athletes cash, cars, cell phones. They pay 
runners to curry favor with star athletes. They give free trips 
to their friends and offer jobs to their family members, who 
are in a position to influence the athlete. They harass them by 
telephone, stalk them at hotels and dorm lobbies. Coaches from 
the University of Tennessee tell me that when they have to--or 
when they have bowl games, they have to post guards to keep the 
sports agents away from their players.
    Agents know it is against NCAA rules for kids to sign with 
an agent while they are still eligible to play college sports. 
It is also against NCAA rules and many State laws for them to 
offer anything of value to a student athlete. Yet agents 
continue to aggressively pursue student athletes with little 
regard for their future or the school's athletic program.
    And why? Under the current rules, when an agent crosses the 
lines and gives gifts or money to a student athlete, the only 
person who is not held accountable is the sports agent. The 
student athlete loses his or her scholarship. The university 
faces fines and sanctions. The agent generally faces no 
consequences from the damage they cause.
    If it is illegal in the student's home State, it is easy 
enough to contact the student athlete when they are on the 
road. When sports agents give money and gifts to student 
athletes, it threatens the athlete's educational experience and 
the integrity of the amateur athletes.
    I introduced the Sports Agent Responsibility and Trust Act 
with Representative Osborne to shift the burden of 
responsibility and hold sports agents accountable for their 
behavior. SPARTA would make it unfair--it would make it an 
unfair and deceptive business practice for sports agents to 
give anything of value to student athletes in order to entice 
them into signing an agency contract.
    The bill would also prohibit agents from giving false or 
misleading information to athletes and from failing to tell 
athletes in writing that they may lose their NCAA eligibility 
if they sign a contract. The bill would cover not only agents 
but also runners and other individuals connected to the agents.
    The bill deputizes State attorney generals to prosecute 
violators in Federal district court on behalf of the FTC with 
fines of $11,000 per offense per day the violation continues. 
Finally, the bill requires sports agents to immediately notify 
a student athlete's school in writing when an athlete signs an 
agency contract, so that the athlete is not unknowingly played 
in a game and subjecting the school to sanctions and 
disqualifications.
    Schools will be given their right to pursue civil remedies 
if they are harmed by illegal recruiting activities of the 
sports agent. The pressures on student athletes and colleges 
are tremendous. I believe we have a responsibility to educating 
our student athlete and protecting them from the unscrupulous 
sports agents whose bottom line is their own financial gain.
    Our student athletes need to make good, informed decisions 
about their future. This legislation will send a loud signal to 
bad apple agents that they will be held accountable for 
unethical recruiting practices. The bill is supported by the 
NCAA and a growing list of coaches and athletic directors 
across the nation.
    So once again, thank you, Mr. Chairman, for bringing this 
bill to a prompt hearing.
    Mr. Stearns. I thank my colleague.
    Unfortunately, we have a vote, and then there will be a 
picture on the House floor. So I appreciate your indulgence and 
patience. We are going to reconvene the committee after we have 
this picture and this vote. So the subcommittee will recess.
    [Brief recess.]
    Mr. Stearns. The subcommittee will reconvene.
    We had our opening statements.
    [Additional statements submitted for the record follow:]
   Prepared Statement of Hon. George Radanovich, a Representative in 
                 Congress from the State of California
    Mr. Chairman, thank you for holding this hearing today to discuss 
H.R. 4701 and the associated problems that give rise to the need for 
Federal legislation.
    Today, we will here testimony regarding sports agents using 
fraudulent and deceptive conduct to sign collegiate student athletes to 
a professional sports contract. As the salaries of our professional 
athletes have magnified over the years, the number of deceitful sports 
agents has also multiplied. These worthless agents have often broken 
the rules and suffered little or no consequence compared to the athlete 
and the school. Many of these violations have led to schools bearing 
the large financial impacts.
    These agents, who only care about money, are willing to do whatever 
it takes to represent any student-athlete who has even a slim chance of 
playing professional sports in order to acquire the enormous fees that 
accompany the representation of professional athletes. It is time to 
end all of the secret payments and gifts that are given to athletes, 
friends or relatives who have the ability to influence the athlete.
    In the end, I hope we can work together to forge bipartisan 
legislation that will build on our Committees' recent progress and 
result in continued improvements in our collegiate athletics.
    Thank you, Mr. Chairman, for holding this hearing today. I look 
forward to the witnesses' testimony.
                                 ______
                                 
 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce
    Thank you Chairman Stearns for holding this legislative hearing 
this morning. And let me also to take a moment to thank the sponsor of 
this bill, Mr. Bart Gordon, of Tennessee, for being concerned enough 
about our young collegiate athletes to pursue a legislative remedy. I 
know this has been a longstanding concern of his and I share the 
concern that young athletes are too often preyed upon by unscrupulous 
sports agents.
    With the amount of television exposure of college athletics, we 
sometimes forget that these young athletes are just that--young and 
often naive, without the benefit of the wisdom and experience that 
comes with age. Unfortunately, a few of these so-called sports agents--
vultures really--know this fact well, and will exploit it for their own 
personal gain with little regard for the athlete. Sign a young 
collegiate star who makes it big as a professional and the windfall to 
the agent is tremendous.
    Fortunately, we can set rules of fair play and set penalties for 
those who choose to break them. I know that many states, including 
Louisiana, already have laws to address the conduct of sports agents. I 
am also aware that a uniform state law has been enacted by a number of 
states and is moving through several other state legislatures. So there 
has been some recognition at the state level that there is a problem 
and some attempts have been made to address it.
    The questions I have this morning relate to why current laws are 
insufficient. Is it a matter of states enforcing the laws they have? Or 
is the system only as strong as its weakest link? Why have some states 
never enacted a law to address sports agents?
    Given that some states have yet to enact a law or move the uniform 
state act, it appears the state efforts will be a lengthy process. It 
seems logical that the Federal government could play a role that would 
provide a remedy and deterrent where none currently exists.
    That being said, human nature is susceptible to greed and we cannot 
change the fact that some people will do anything for the lure of a 
quick dollar--or in the case of multimillion-dollar sports contracts, 
quite a few quick dollars. For that reason alone, I think it will 
require tremendous effort and vigilance to minimize current abuses 
under any regulatory environment.
    I am very interested in hearing answers to my questions and look 
forward to a discussion of these issues.
    Thank you, Mr. Chairman, and I yield back my remaining time.

    Mr. Stearns. We will welcome Coach Osborne, the Congressman 
from the 3rd District of Nebraska, and appreciate his 
attendance, and we look forward to your testimony. Thank you.

  STATEMENT OF HON. TOM OSBORNE, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF NEBRASKA

    Mr. Osborne. Thank you, Mr. Chairman, and appreciate Mr. 
Gordon's work on this bill, his attendance.
    Mr. Terry, good to have you here today.
    And I am a co-sponsor of H.R. 4701, the SPARTA Act. Mr. 
Gordon really took the lead on it, and I guess the only thing I 
bring to the table is maybe a little bit of firsthand 
experience with what goes on out there.
    And, you know, things have changed a lot. In 1961, I played 
here in this town with a guy who was a first round draft pick. 
He was the No. 1 of all No. 1s, and his total salary that year 
was about $16,000. And today the No. 1 pick would probably be 
more like $16 million.
    Nobody at that time had an agent. A lot of all pros played 
for $10,000 or $12,000 a year. So as the money escalated, the 
interest in making off of players and agents began to 
proliferate. So today an agent can make several thousand 
dollars or maybe several hundred thousand dollars or even a 
million for very little work. And so it has really changed 
things.
    Ed Garvey, who used to be the head of the Players 
Association, at one time made a stab at regulating the thing a 
little bit by, at the University of Wisconsin Law School where 
he was a faculty member, said that they were going to set up a 
training course, which they did, and you had to have some 
qualifications to pass the course. You had to know something 
about contracts. You had to have some expertise.
    And what it advocated was an hourly wage. And, you know, 
you can hire a pretty good attorney for $300 or $400 an hour, 
and most people wouldn't have to pay more than $5,000 or 
$10,000, even a first round pick, at an hourly rate. But that 
isn't the way most of these guys operate, so they are making 
hundreds of thousands off of the top picks.
    There are some effective sports agents, and I think it is 
important we say that up front. They are well trained. They are 
registered. Many of them are attorneys. They follow NCAA rules 
and State and Federal laws, and I think they perform a service. 
I was never crazy about the profession, but I do recognize that 
there are some good people out there.
    The main problem that we are facing is that in 2002 the NFL 
Players Association said that they had 1,196 registered agents. 
And the thing about it, these are people who are qualified to 
negotiate a contract for somebody in the NFL. The problem is 
that of those 1,196, more than 800 did not have a client, and 
there are several hundred more out there who are not 
registered.
    So you can represent a player coming out of college and not 
be registered with the National Football League Players 
Association. All you have to do to be an agent is say you are 
one. And so we have guys who have no training, don't even have 
a college degree, who are telling guys that they can handle 
their contracts, do their taxes, handle all of their public 
relations, and, you know, they have no training in any of these 
issues.
    A marginal agent can't compete. Obviously, when you have 
got that proliferation of people out there, a guy who has no 
expertise, who has no training, is not going to be able to wait 
until the young man or young man has graduated from college and 
do things the right way. So the only chance they have is to 
approach a lot of these young people while they are still in 
school, while they still have eligibility remaining.
    And so they will use a variety of tactics. One is simply 
trying to beat the door down, and so most of our better players 
in Nebraska ended up having to get unlisted numbers in their 
junior and senior years, mainly because of agents. The agents 
were so numerous and calling them every night that they just 
finally decided they couldn't handle it anymore. So that is one 
of the things that happened.
    And I remember one time getting ready to go to a bowl game 
down in the Orange Bowl, and we were getting ready to get on 
the bus and I couldn't find my quarterback and found him in the 
lobby of the hotel between two agents who were browbeating him 
2 hours before the kickoff.
    Well, that didn't set real well with me. And, of course, I 
mean, it was sort of a deal where they just grabbed him coming 
off the elevator, and he didn't want to be discourteous, and so 
he sat down. But that type of thing does happen.
    Sometimes they sign a player to a contract before 
eligibility expires, and they often times will ask--or will add 
an inducement such as some cash, cars, clothes. We had one 
player who was taken out to Los Angeles and met some Hollywood 
stars, and he was told there was nothing illegal about the 
trip.
    And, of course, when he took the trip he became ineligible, 
and that player suffered an injury and subsequently never did 
play for us, but he would not have been eligible anyway. And he 
met Patti LaBelle and some people, and it really, you know, 
turned his head a little bit.
    So, anyway, that was--that is something that sometimes 
happened. And the problem is that when a player takes something 
early, such as cash or cars or clothes, or whatever, to some 
degree he belongs to that agent, because the agent can then 
say, ``Well, listen, if you don't go along with me, if you 
don't cooperate, I am going to blow the whistle on you, and you 
are going to lose your eligibility, and your school is going to 
get in trouble, and your school is going to have to forfeit 
some games.'' The school may not have to forfeit, but that is 
often said.
    And so, as a result, the agent becomes a more dominant 
person in that player's life than the coach does. And to some 
degree, the agent owns the player. And he may have 
inadvertently gotten into it, but once he is into it it is 
pretty tough.
    Sometimes there is misrepresentation. On a couple of 
occasions we had young men who had been former players who 
showed up, maybe after 10 years, and we hadn't seem him for a 
while, and they seemed to be very interested in the program. 
And they would hang around and befriend the players, and the 
first thing we would know they were runners. They are working 
for an agent, and they try to sort of infiltrate the program. 
And because of their previous player status, they were 
certainly welcomed back, because nobody knew what they were 
doing.
    And so some of that happened, and we had one or two 
unfortunate incidents where players got involved, in some cases 
not even knowing for sure what they were getting involved with 
because of the runner situation.
    The other thing that is particularly insidious about the 
agent business is they many times will misrepresent what they 
can deliver, and the most common ploy at the present time is to 
assure a player that the agent somehow will get him drafted 
higher.
    And so, in recent years, Nebraska had a couple of players 
who were very good players, and there is a committee in the 
National Football League that you can call that consists of 
player personnel people, and they can give you a pretty good 
idea of whether you are going to be drafted early--I mean, 
before the draft ever occurs.
    And so for one of these young men I called that committee, 
and I put the young man on the phone with the chairman of the 
committee, and the committee told him that he would be drafted 
in the third round. And he was a junior, and so, you know, we 
said, ``Well, you do what you have got to do. But, you know, 
you stick around; there is a pretty good chance you are going 
to be first round pick next year.'' And the difference between 
a third round pick and a first round pick is probably $800,000 
for a third round pick and $6-, $7-, $8 million average for a 
first round. Well, you know, usually that is worth a year's 
wait.
    But the young man was told--and I think his family was 
told--that that was a lot of malarkey. They were just trying to 
keep him around and that he was going to be a first round pick. 
Well, the draft came, and he was third round pick. And there 
was a lot of consternation, some folks, you know, that were 
really unhappy, and they said that the coaching staff had 
badmouthed the player. Nobody had done anything like that.
    So sometimes when the player--when the agent makes that 
kind of a promise, and then it doesn't come true, then he will 
point the finger at others. But anyway, that is something that 
is very commonly done at the present time, and many times it 
results in a player coming out early who shouldn't come out.
    And each year there are some players who actually declare 
for the draft, lose their eligibility, and then aren't drafted 
at all. So they lose their education, they lose dollars, and 
all of this, of course, works against the school and the 
player.
    And then, of course, sometimes there is folks who are pre-
dating and post-dating contracts. We had a player, two players 
actually, who were contacted at their home in the summer, quite 
a distance from Nebraska, and were convinced that they should 
sign contracts that would be post-dated.
    They did so, and then, as we were down at a bowl game, that 
same agent was harassing those guys all week telling them that 
if they didn't honor that contract that he was going to blow 
the whistle on them. And so their mind was not on the football 
game, and I didn't find out about it until months later. But 
they didn't have their best game, and we were playing for the 
national championship. So that is one reason I am not real 
thrilled about some agents, not all, but some.
    So let me conclude by saying this. I think the legislation 
is needed because there are currently 17 States that have no 
regulation of sports agents, and I think Mr. Gordon and I both 
agree that we are not trying to supersede State law. We would 
like to see every State with regulation, but right now we have 
a hodgepodge.
    Some States cover this; some cover that. Seventeen have no 
regulation. And most of these guys, these agents, operate 
across State lines. And so you had Norby Walters, Lloyd Bloom, 
who went to prison, Tank Black recently, and they had multiple 
people that were involved illegally across many different 
lines.
    So what this does, it provides a uniform Federal backstop, 
which we think will serve athletes well. It serves the schools 
well, and it allows the States, and the schools particularly, 
to go after an agent who has done something deliberately in 
violation of NCAA rules, because the school, not just the 
player--the player suffers certainly--but if the school loses a 
good player prematurely, the school gets a black eye. It is 
almost as though somehow the school wasn't doing their job, but 
it is very hard to keep a finger on all of this. And then they 
lose a good player.
    So, anyway, I think it is certainly legislation that is 
needed, and we appreciate this subcommittee addressing the 
issue. I would be more than happy to answer any questions that 
any of you have regarding the issue that we are talking about.
    [The prepared statement of Hon. Tom Osborne follows:]
 Prepared Statement of Hon. Tom Osborne, a Representative in Congress 
                       from the State of Nebraska
    Thank you Chairman Stearns, Ranking Member Towns, and Members of 
the Committee. I appreciate the opportunity to come and speak with you 
today about legislation that the gentleman from Tennessee, Mr. Gordon, 
has introduced. I am pleased to join him in support of H.R. 4701, the 
Sports Agent Responsibility and Trust Act, or SPARTA.
    Each year, hundreds of college athletes are offered illegal 
inducements to enter into contracts prior to the exhaustion of the 
athletes' eligibility by unscrupulous sports agents. During my 36 years 
as a football coach, I was deeply concerned by overly aggressive, 
unethical sports agents who compromised a student-athlete's eligibility 
or took financial advantage of student-athletes and their families. 
With the lure of big money involved in professional sports, I witnessed 
first-hand the difficulty in trying to keep agents and their runners 
from attempting to illegally recruit my players with cash and gifts. In 
pursuit of the hefty fees that are associated with representing 
professional athletes, sports agents engage in unethical behavior that 
undermines the integrity of college sports.
    In addition, when sports agents engage in this type of 
impermissible behavior, their actions often result in three major 
problems for student-athletes and the schools they attend, while sports 
agents themselves often face little or no consequences.
    First, when sports agents provide inducements to student-athletes 
and therefore break NCAA rules, the student-athletes lose his 
eligibility to compete in collegiate competitions, and often times lose 
his scholarships. For many of these collegiate athletes enticed into 
forfeiting eligibility, the loss of eligibility means the loss of a 
college education if they cannot afford to pay their own way. In 
addition to facing sanctions they may not expect, these athletes often 
times damage promising professional careers. When a sports agent 
promises a student-athlete fame and fortune--or a first-round draft 
selection--a focus on superstardom and wealth may prevent them from 
considering the consequences of signing away their NCAA eligibility.
     Personally, I experienced having a player in the 1980s who was 
offered some illegal inducements, and in turn lost his eligibility, 
which for the most part ruined his career. This particular player was 
involved with agents who had already given illegal inducements to 
players across the country. Eventually, these agents were indicted on a 
number of felonies, leading them to go as far as threaten some of the 
players with bodily harm. At the time, however, we lacked the laws to 
pursue these agents in the State of Nebraska, and these loopholes still 
exist today.
    Unscrupulous agents often take advantage of students who have 
little or no experience in contract negotiations, potentially causing 
financial harm for student-athletes, their teams, and their respective 
schools. On a personal note, I had a player back in the 1980s that 
thought he signed a contract giving 3 percent of his earnings to the 
agent, but somewhere buried in the contract was a much larger figure of 
13 percent of his earnings, causing him to lose thousands of dollars. 
Fortunately, this player was able to recover more than $300,000 under 
California state law where this agent originated. In my home state of 
Nebraska, however, we did not have the laws to go after this agent.
    Schools also stand to lose financially from the deceptive actions 
of sports agents. If a student-athlete loses his eligibility because he 
accepted inducements from an agent, and his ineligibility is not 
disclosed to the school and the ineligible student is allowed to 
compete in violation of the rules, that school may face a number of 
sanctions, including suspensions, fines, and the possible loss of post-
season play and all the revenue that this might represent.
    When student-athletes lose their eligibility by entering into an 
agency contract with unethical agents, intercollegiate athletics 
suffers because of the negative perception that is often associated 
with this type of activity. In recent years, the number of incidents 
where student-athletes were persuaded by unscrupulous agents to accept 
payment or other consideration in exchange for exclusive representation 
has created a negative perception that threatens the integrity of 
college athletics and the educational institution involved. While 
colleges and universities rarely do anything wrong in these situations, 
the mere fact that their student-athlete entered into such an agent 
contract reflects negatively on the school.
    Why is this legislation necessary? As of April 2002, the National 
Football League Players Association reported that there were 1,196 
certified football agents, almost double the number from 10 years ago. 
But, more than 800 of these agents have no clients. Hundreds of these 
so-called ``agents'' lack both certification and qualification. 
Unethical sports agents, often motivated purely by greed, will use any 
means necessary to represent a student-athlete who has even a remote 
chance of playing professional sports.
    Currently, 17 states in our country, including my home state of 
Nebraska, have no regulations governing the conduct of sports agents, 
while many other states have a patchwork of vague and differing agent 
regulations. Until all 50 states adopt the same standards for 
regulating sports agents, there will be no uniformity in the laws 
governing sports agents. SPARTA would provide a minimum federal 
backstop for regulating sports agent conduct, while at the same time 
respecting tough state laws.
    SPARTA would make it unlawful for an agent to give false or 
misleading information or make false promises or representations in 
order to entice a student-athlete into signing an agency contract. This 
legislation would also make it unlawful for an agent to fail to 
disclose to the student in writing before signing a contract that the 
student may lose his eligibility to compete in collegiate athletics. 
SPARTA requires sports agents and student-athletes to notify the 
school's athletic director within 72 hours--or before the student-
athlete's next sporting event--of signing an agency contract. This 
legislation is needed in order to protect our student-athletes from 
unscrupulous sports agents.
    The bottom line is, most student-athletes do not make it in 
professional sports. But, they may have been enticed to leave school 
early only later to realize that their agents acted solely for their 
own financial benefit, with no concern for the athletes' future. Over 
36 years of coaching I saw too many student-athletes taken advantage of 
by sports agents looking out for their own bottom lines. I firmly 
believe we need to treat sports agents who lie, cheat and deceive, as 
we would treat any other businessperson who promises the world but 
delivers only heartache.
    Thank you again for the opportunity to be here today to offer my 
thoughts about this important legislation.

    Mr. Stearns. Coach, thank you very much. I think it has 
been very enlightening for all of us to hear this, and 
particularly from your standpoint. Most of us have not had the 
distinguished career that you have had in athletics. So for you 
to step forward and to not only endorse this bill but to go out 
and speak in a proactive manner is very helpful.
    You can bring keen insight that many of us don't have. I 
mean, you can name agents and players, and you know the 
history. So it is very important that you participate, so I 
want to thank you for doing that.
    When I was thinking about this hearing, I was sort of 
appalled, just like you are, how agents are--it is sort of like 
the Wild West. They can do almost anything they want. Now, it 
appears--I asked staff--that Nebraska has yet to enact this--a 
State law. If I am correct, that is correct, isn't it?
    Mr. Osborne. Right. There have been numerous attempts in 
the State legislature to enact some type of law, and it is has 
been blocked every time and for various reasons. And one thing 
I would like to point out is that this really shouldn't alarm 
attorneys. Sometimes attorneys get worried about things, but 
most of--there are very few of the agents that we are talking 
about are not--are attorneys. You know, most of these people 
have no training at all.
    Mr. Stearns. You say they don't have a college degree, a 
lot of them? No training?
    Mr. Osborne. Some of them don't, yes. Right.
    Mr. Stearns. And they are saying, ``I am an expert on PR. I 
am an expert on taxes,'' and so forth.
    Mr. Osborne. Yes.
    Mr. Stearns. But I guess what I am trying to understand, 
why hasn't this been solved sooner? I think my colleague from 
Tennessee has done a great bill here, but I am really--from 
what you just said this morning, what the staff has told me 
earlier, it is--I just can't understand why the State of 
Nebraska has not done it. Has it been politics, do you think? 
Or is there anything you could reveal to us that--why the State 
of Nebraska has not done something about which is so corrupting 
and is so omnipresent?
    Mr. Osborne. Well, you know, the difficulty has been that 
we have had an influence in the State legislature that says 
that if a player--you know, the NCAA and colleges exploit 
players. Therefore, if a player can get something, even if it 
is illegal, he ought to be allowed to do it. And that has been 
one of the arguments, and so I--you know, this is obviously 
something I have not adhered to.
    But every State has their own reason. Sometimes it can be 
an individual who blocks it. Sometimes it can be, you know, 
several. But, obviously, it does seem to make sense to us that 
we need an overall Federal umbrella that would at least give 
some safety net.
    Mr. Stearns. And that is probably another reason why we 
should go ahead with this, is because we have got States that 
are reluctant to do it because of maybe political reasons, so 
maybe on the Federal side that we could solve that.
    When these agents do some of the things you talk about, 
these deceptive practices, that perhaps lose the eligibility 
for the player, is it--are there any laws that they are 
breaking at all in terms of something fraudulent or deceptive 
that would break any known rules? Or is this--there is no known 
rules existing other than the player loses his eligibility if 
he or she takes a gift.
    Mr. Osborne. Yes. And many agents have said, ``Look, I 
didn't break any laws. You know, NCAA rules don't affect me.''
    Mr. Stearns. So the player gets hit, but the agent never 
gets hit because----
    Mr. Osborne. Yes, the player in school, right.
    Mr. Stearns. So there is no laws at all on the agents. So 
they are free----
    Mr. Osborne. Well, some of the individuals I mentioned 
previously went to prison because they had violated some laws. 
In one case, I know that they actually used physical threats 
against players and threatened to break their leg or something 
like that, which probably isn't something you ought to be 
doing.
    And we did have one case where we had a player who ended up 
signing with an agent that was rather unscrupulous, and the 
player thought he was signing for a 3 percent agent fee, and 
somewhere buried in the contract was 13 percent. So he ended up 
paying 13 percent, and this particular agent was from 
California.
    California did have a State law. The agent did not register 
in California, which he should have. Therefore, there was some 
redress, and the player was able to recover about $300,000 in 
excess fees because California had a law. In Nebraska we 
couldn't touch him, and so it does show you how a law can work. 
It can help, and in some cases does. But since we have no 
uniform standard, we have got a problem.
    Mr. Stearns. My last question, Coach, is a lot of these 
players are very susceptible. And, as you pointed out, this one 
player went out to Los Angeles and the bright lights turned his 
head. The question of the player knowingly or not knowing--I 
mean, do you think that we should be clear that some of these 
players are so naive, and they are so wishing to believe that a 
statute should provide whether he knew or not what was 
happening--in other words, how do we protect from those people 
that are just naive and go out there and an agent comes up to 
him--I am sure if an agent came up to me in high school and 
said something, I would just say ``gosh'' and go along.
    Mr. Osborne. Well, you know, unfortunately, people tend to 
believe what they want to hear.
    Mr. Stearns. Yes.
    Mr. Osborne. And so you can have a very good relationship 
with a player. You may have recruited him. You have been with 
him for 4 years. And yet when it comes to professional 
athletics, sometimes he will trust the word of somebody that he 
met 2 hours before more than he will the coach.
    Mr. Stearns. Right.
    Mr. Osborne. And it is unbelievable. To me, it was 
genuinely unbelievable. And I don't want to say that the 
players have no responsibility, because the players are told 
over and over and over again what the rules are. But there are 
a few times when an agent can come in and say, ``Look, you 
know, if you sign this, it really doesn't mean anything because 
it isn't dated until 6 months from now.'' So it really doesn't 
go into effect, so you are really not obligated.
    But when you make a verbal or a written agreement, you have 
compromised your eligibility. And so then the agent can come 
back and say, ``Well, you signed it, and we have an agreement, 
and you are in trouble. And, therefore, you better go along 
with me.''
    So there is some naivete here, and then there are some 
cases where the player just becomes a little greedy. But in any 
case, it doesn't work out well. I would say 95 percent of the 
time a player that has signed early will become disenchanted 
and will try to get out of that contract, if not before he 
leaves school, after. None of these relationships last very 
long.
    And as I mentioned, usually it is--the agent that comes in 
early is not a very competent agent. The only chance he has to 
sign a player is to come in early.
    Mr. Stearns. I am going to ask you one last question. It is 
a little more difficult, and it is asking you to really keep 
your hat on as coach and not as a Congressman. Mr. Gordon has 
done a great job on this bill. But if you could be the Speaker 
of the House, and you are sitting out there, and this bill has 
passed the House and it has passed the Senate--it has gone to 
conference--is there anything you would add to this bill to 
make it stronger?
    You know, there is a question of preempting States' laws so 
that we have one Federal national law, so that we don't have 50 
courts deciding in 50 States. You know, that is one 
possibility. Or, you know, I mean, so you are the Speaker of 
the House. It is in conference. What would you do? Anything 
different to the bill? I mean, in the early stages here, 
without----
    Mr. Osborne. I don't think that I have anything, Mr. 
Chairman, I would add. Mr. Gordon and I have talked. We have 
worked together. We made a couple of minor changes, which I 
suggested. I think at one point there was an opportunity for 
the school to sue the player. I didn't think that would 
probably play very well in some regards, and so we took that 
out, because sometimes a player does something knowingly, 
sometimes he doesn't.
    And so, anyway, we have made some changes. But my problem 
is I am not an attorney. I am not an expert in legal affairs. 
Therefore, I may be missing something there. I do know pretty 
much the ins and outs of the agent game from the college 
coaching side of it.
    Mr. Stearns. I think my time has expired.
    The gentleman from Tennessee.
    Mr. Gordon. Speaker Osborne, congratulations for your 
promotion. A lot of us had to stay around a lot longer to reach 
that. And I also thank you so much for all your expertise in 
what you have brought to this bill. Let me address a couple of 
things that were brought up.
    I guess one question--why not before? I think part of it 
is, as you pointed out, the dollar figures have escalated so 
dramatically in the last few years that it is a different 
problem than it was before.
    I think the other thing, as I have talked with sports 
writers around here and there, there is a natural inclination 
to be skeptical, particularly in the sports community, for 
anything with the Federal Government, any kind of regulation, 
more than probably even the business community or anywhere 
else. So there has been a reticence. And even when I first 
introduced it, the NCAA was opposing the bill, not the concept 
but preferring that it be done on a State level.
    Well, I think now we have seen the problem has only gotten 
worse, that some States have moved forward, some haven't. And 
there has got to be some kind of uniformity, and there are 
different rules. And another question you asked, ``Is there 
nothing you can do?'' Yes, there are some fraud type of laws 
that they are violating. But it is in a broad sense, and this I 
think narrows it, gives more remedies, and also things like 
notifying the school. This law will require the schools be 
notified.
    Besides the student being disadvantaged, here you are as a 
coach, I mean, how many times have you told the players--you 
know, you are really trying to get them to act right, and then 
all of a sudden somebody comes in, a runner that pretended like 
they were a friend, an uncle, or whatever they might have been 
influenced, and they undo all the work that you have done. And 
so there is just a lot of things that can be done there.
    I want to go back to another point, Representative Osborne, 
that you made, and that is that a lot of agents are good and 
decent, obviously, and serve a good purpose. But what has 
happened now I think is that you are brought down to the lowest 
common denominator. As a football coach, if the rest of the 
folks in your conference are cheating in some way and winning, 
it puts a lot of pressure on you, you know, not to do whatever 
they are doing, you know, and maybe lose.
    So I think that the good sports agents are going to say 
thank you for bringing this in, so that it helps us do our job 
better and takes the pressure off of these other folks.
    Mr. Osborne. I think you are correct. If I might interject 
there, a lot of the more reputable agents have gone to 
something recently simply to survive, and that is that once a 
player has completed their eligibility they have had to say 
play the game, that we are going to get you drafted higher.
    And so they will say, ``Well, now that you have finished, 
what we need to do is we need to take you to Los Angeles. And 
we are going to get you a personal trainer, and this guy is 
going to work with you every day. And we are going to get you a 
nutritionist, and we are going to work out with you. And when 
you go to that combine in Indianapolis, you are going to be 
faster and bigger and stronger than ever. And we are going to 
get you drafted higher. You know, you will be a first round 
pick.''
    So even the good guys are saying that kind of thing, and 
the problem is that that is a lot of malarkey. I mean, in 
Nebraska, we have got a better weight program, we have got a 
better nutritionist, we have got a better everything than what 
they have got in Los Angeles. And usually within two or 3 weeks 
these guys are disillusioned, and they say, ``Hey, I left a 
place that prepared me better than any place could have.''
    They come back, but in the meantime they have dropped out 
of school. And they may only need 3 hours to graduation, and 
some of them never complete their degree. And so it is 
something that drove me crazy from an academic standpoint, even 
with a guy that had legitimately approached a player at the 
right time.
    Mr. Gordon. I mean, these are 20-year olds that really, in 
this situation, don't have a second chance. One bad decision 
and they are out.
    Mr. Osborne. Right. Yes, you can pretty well ruin your 
career in about 10 minutes.
    Mr. Gordon. Yes. We have received a number--and we should--
we will be getting those out later on, but a number of 
endorsements from different coaches, from athletic directors, 
from all across the country. Can you--I mean, is there any 
reason that some--that a coach would not want this? I mean, is 
there--you know, why wouldn't we do this?
    Mr. Osborne. I can see no reason. I don't know of any coach 
who would oppose it. I don't know any athletic director who 
would oppose it. I don't know any player that would oppose it 
if he had the big picture. And I think the NCAA at one point 
thought that it would be better to do it through the States, 
and it would be ideal if we could get all States to do it. But 
we have been at this a long time.
    I mean, we have had State laws on the books for--in some 
States for 15 years. And, you know, we had the case at Penn 
State with Enos Sudaclose, who lost his eligibility, the 
FootLocker deal, Florida State--you know, some guy took some 
players down, and they thought they were just getting a free 
pair of tennis shoes. Well, a whole bunch of guys were all of a 
sudden obligated, and in some cases a State had a redress, and 
in some cases a State all of a sudden decided they were going 
to pass a law because they lost a high-profile player. But 
until something like that happens you just can't get their 
attention.
    Mr. Gordon. If I could just real quickly close. Let me--I 
just want to point out also, we are not setting up a Federal 
sports police operation here. By and large, what this bill does 
is it deputizes the State attorney generals, and so the FTC--or 
no one else is going to be going out and doing this.
    But it allows a coach or an athletic director, or whatever, 
in a particular State to go to their attorney general and say, 
``We have got this problem. You have got the authority. Take 
care of it.'' There is not a Federal police force for this.
    Thank you.
    Mr. Osborne. I might just add, you mentioned the part of 
the bill that requires the agent and the player to notify the 
school within 72 hours of signing a contract. That gives some 
legal foothold for the attorney general of the State or the 
school, because if a guy signs early, you know, and he hasn't 
reported it, and obviously he is not going to report it, you 
know, the agent and the player are in a catch 22 also, 
particularly the agent. And so I think that is a very good 
provision of the bill, that they have to notify the athletic 
director in writing within 72 hours or the next game before--
after signing.
    Mr. Stearns. I thank the gentleman.
    The gentleman from Arizona, Mr. Shadegg.
    Mr. Shadegg. Thank you, Mr. Chairman. I thank you for 
holding this hearing, and I compliment both you, Coach Osborne, 
and Mr. Gordon for offering this legislation.
    I want to follow up on a point you just made with regard to 
the remedy for the university and some of the questions that 
the chairman asked with regard to the remedy. I guess one of 
the things that I am curious about would be the remedies under 
the bill. I see that, at least in the language of the bill, it 
makes this conduct unlawful, and it imposes what appear to be 
quasi-criminal penalties, including, as I--a summary that was 
given to me says $11,000 per incident per day.
    One of the questions that I would have would be, it seems 
to me there are a number of victims in this circumstance. 
Obviously, the young 20-year old athlete is a victim of an 
unscrupulous agent in this circumstance. It seems to me that an 
athletic program can also be a victim, if that athlete loses 
eligibility.
    And I guess the question I would have for you or Mr. Gordon 
either one, or maybe staff, was there any thought given--and I 
just skimmed through the language of the bill and didn't see 
it--of inserting a declaration that it is against public policy 
for athletes to be induced to enter these contracts based on 
false representations or upon gratuities? And that upon any 
finding that that has happened that the contract itself is null 
and void as violative of public policy?
    And I guess my thought there is, if you could declare the 
contract void, the contract that the athlete entered into with 
the agent, maybe you could then escape the athlete's 
ineligibility, since at least under these circumstances the 
athlete is induced to sign an agent's contract under 
circumstances that are either deceptive or violative of public 
policy.
    That is, he was lied to or misrepresented about what 
signing the contract would mean, lied to about, for example, 
post-dating it, that that wouldn't have any effect, or lied to 
that taking the gratuity wouldn't violate his eligibility. And 
it seems to me if you could insert language saying this is 
against public policy, and, therefore, the contract is void, 
you might be able to undo the damage done to that athlete, and 
it seems to me also possibly undo the damage done to the 
athletic program, because if you can undo the contract, you 
render it void, maybe that athlete doesn't lose his or her 
eligibility. And I just wondered if any thought was given to 
that as a remedy.
    Mr. Osborne. Well, that is a very good point. And I think 
the NCAA will be testifying, I believe, in some of their 
State--the legislation that they have tried to initiate at the 
State level. That provision may be there and----
    Mr. Gordon. If I might help, Representative Osborne, on 
this.
    Mr. Osborne. Yes, go ahead.
    Mr. Gordon. As I understand it, to----
    Mr. Stearns. The gentleman yields to the gentleman from----
    Mr. Shadegg. Be happy to yield.
    Mr. Gordon. The contract law really is a State 
jurisdiction, and so with Federal law we don't have the 
authority to make it null and void. But also, the other--you 
really want to stop this in the front end. The other problem 
that you have is, even having these kind of conversations, much 
less the signing, against--they can lose their eligibility 
through the NCAA.
    The other sort of--an earlier part of your question about 
the school's sort of helplessness--under this law, the schools 
also have a right of litigation against the sports athlete. If 
they are penalized, if--you know, if--for some illegal 
activity, that they can't go to a bowl game, or this player 
can't play, they can take action also against the agent.
    Mr. Shadegg. Well, maybe it is better for me to ask 
somebody from the NCAA. But it seems to me that if we are going 
to pass a Federal law, if there is a need for a Federal 
statute, it seems to me that Congress ought to have the right 
to declare something against public policy, and maybe there is 
a thought that we should put some injunctive right in there 
against--for a university or even the NCAA to go after agents 
and enjoin them from this conduct if they know there are agents 
out there doing it.
    Mr. Gordon. If you would yield once again.
    Mr. Shadegg. I would be happy to yield.
    Mr. Gordon. I think these are good ideas, and that we need 
to take this and see if it can be incorporated. Our earlier 
first shot at this through a--through not necessarily logic or 
good sense, but there are different jurisdictional matters for 
different purposes. There really ought to be criminal activity 
here, but we are--since we are going through the FTC, they only 
have jurisdiction really for civil.
    All of those are good questions that need to be reviewed, 
and I think it, once again, goes to the reason or to our--the 
bill also encourages the States to move forward with their 
own----
    Mr. Shadegg. I see that.
    Mr. Gordon. [continuing] criminal legislation. So I think 
it is going to be a combination. All of this will be reviewed, 
and we will take another shot at it, because I think you have 
raised some very good points.
    Mr. Shadegg. I throw those thoughts out and compliment you 
on your efforts.
    Mr. Osborne. Yes. It would be ideal if we could just undo 
what had been done. And it is a little bit complex, because 
then the NCAA would also have to say, well, okay, we are going 
to exonerate you and give you your eligibility back, and we 
can't speak for the NCAA.
    Mr. Shadegg. Clearly, they have the jurisdiction to make 
that decision.
    Mr. Osborne. Right.
    Mr. Shadegg. Thank you, Mr. Chairman. I yield back my time.
    Mr. Stearns. The gentleman yields back.
    The gentlelady from California, Ms. Capps.
    Ms. Capps. Thank you, Mr. Chairman. Thank you for holding 
this hearing, and I am pleased to be a part of a hearing where 
my colleague, Mr. Osborne, is testifying. And as he knows, I 
have relatives in the State of Nebraska, and some of your shine 
can rub off onto me. Being here in the presence of Coach 
Osborne, as he is known throughout the State that loves him so 
much for what he has done for athletics, is a great honor.
    Mr. Osborne. Thank you.
    Ms. Capps. We have a valuable witness here today who holds 
the idea of college athletics in the high and lofty view that 
it should be.
    Mr. Osborne. Thank you.
    Ms. Capps. I want to take advantage of your expertise and 
your relationship with the NCAA over the years and talk to us 
about the NCAA can become more empowered to educate, along with 
the colleges, young athletes.
    Maybe we need to start in our secondary schools, as some of 
the sports agents, reach down into the high schools. We need an 
educated athlete, don't we, in terms of what their 
responsibility is. Is there any way that we can help to foster 
that within NCAA?
    Mr. Osborne. Well, the NCAA can probably speak to that. I 
don't know that they have a formal educational program. You 
know, they certainly talk to the schools, and we talk to our 
players continually. We bring in former players. We bring in 
former agents. We had--you know, I don't think many of our 
players could say they weren't informed.
    Ms. Capps. Right.
    Mr. Osborne. But I think it is symptomatic of the culture 
that we tend to be very materialistic, and a lot of times if 
enough money is waved in front of a player, even a fairly 
ethical person sometimes will waiver. And I think the NCAA 
recognizes that. But I think you are correct that if you had 
every player doing the right thing, then this would not be a 
problem.
    Ms. Capps. That is right.
    Mr. Osborne. But, you know, the temptation is great. And I 
would have to say that probably in 30 or 40 percent of the 
cases there is some way that the agent has convinced the player 
that he is not doing anything wrong.
    Ms. Capps. Right.
    Mr. Osborne. Even though he has been educated, still that 
the idea----
    Ms. Capps. Right.
    Mr. Osborne. [continuing] Well, there is another angle 
here. So it is a problem, and I think that would be a question 
that would be well put to the NCAA.
    I know the NFL has an organized program of different 
speakers who come around and talk to players about staying in 
school. You know, and they do talk about the agent issue, and 
they have done a pretty good proactive job. But still, it isn't 
enough.
    Ms. Capps. So do you think the NCAA could model a progam 
after the NFL?
    Mr. Osborne. I have been out of it now for 4 years. Maybe 
they are doing something I don't know about, but I don't 
remember any speaker from the NCAA coming in and saying, you 
know, we really want to talk to your players, and we have got 
this organized program.
    Ms. Capps. Right.
    Mr. Osborne. But, you know, a lot of times people take 
shots at the NCAA, and some of their rules are pretty 
restrictive. But the NCAA--as we used to say, the NCAA is us. 
The NCAA isn't out there. It is not some foreign agency. It is 
really composed of the member institutions, and somebody has 
got to do the dirty work of policing the thing, and nobody 
likes the police when you are doing something wrong.
    So he gets a bad name, but it is an effective organization. 
They do a good job. And it is voluntary, too.
    Ms. Capps. Well, I do appreciate the work that you have 
done on this legislation of which I am happy to be a co-
sponsor. What we are talking about today is a very big issue in 
colleges across this country. And whatever we can do to support 
good ethical behavior we want to do.
    Mr. Osborne. They are very interested in it. And as I said 
earlier, they would like to do it at the State level, but it 
just hasn't gotten done. So I think this is needed. And, 
fortunately, you have a great university, and they may do some 
great things academically. And yet, if your football team gets 
in trouble, on a national scene it maybe does more damage to 
that university than, you know, if the chemistry department 
falls apart. It shouldn't be that way.
    Ms. Capps. No.
    Mr. Osborne. But that is kind of the hard, cold facts of 
the way things are right now.
    Ms. Capps. And, in fact, at some universities they do away 
with organized athletics because they have gotten into so much 
trouble. And in the end, we all suffer as a result of that, 
because when done right it is an asset to higher education.
    Mr. Osborne. That is right. And, of course, the sudden 
death penalty at SMU kind of raised the bar a little bit, and I 
think did help greatly. But it was very painful to SMU.
    Ms. Capps. Thank you very much. I yield back.
    Mr. Stearns. I thank my colleague.
    Coach, thank you very much for coming. We appreciate your 
testimony.
    Mr. Osborne. Ookay. Thank you.
    Mr. Stearns. And now we will go to panel No. 2. We have 
Howard Beales, Director of the Bureau of Consumer Protection, 
Federal Trade Commission; James F. ``Boots'' Donnelly, the 
Athletic Director of Middle Tennessee State University; and 
William S. Saum, Director of Agent, Gambling and Amateurism 
Activities at The National Collegiate Athletic Association.
    Let me welcome all of you folks here, and we look forward 
to your opening statement. And I think we will go from my left 
to my right, and we will start off with Mr. Beales, Director of 
Consumer Protection of the Federal Trade Commission.

   STATEMENTS OF HOWARD BEALES, DIRECTOR, BUREAU OF CONSUMER 
   PROTECTION, FEDERAL TRADE COMMISSION; JAMES F. ``BOOTS'' 
DONNELLY, ATHLETIC DIRECTOR, MIDDLE TENNESSEE STATE UNIVERSITY; 
AND WILLIAM S. SAUM, DIRECTOR OF AGENT, GAMBLING AND AMATEURISM 
    ACTIVITIES, THE NATIONAL COLLEGIATE ATHLETIC ASSOCIATION

    Mr. Beales. Thank you, Mr. Chairman, and members of the 
subcommittee. I am pleased to be here today to discuss the 
Sports Agent Responsibility and Trust Act, which designates as 
deceptive or unfair certain conduct by sports agents relating 
to the signing of contracts with student athletes.
    The written statement presents the views of the Federal 
Trade Commission. My oral statement and responses to questions 
are my own and not necessarily those of the Commission or any 
individual commissioner.
    The FTC has been directed by Congress to act in the public 
interest. The Commission continually monitors trends and 
developing issues in the marketplace to determine the most 
effective use of its resources. The Commission, therefore, 
focuses its resources on cases involving a large number of 
complaints or other evidence that deceptive or unfair practices 
are widespread or an emerging trend. It does not generally 
focus on individual disputes.
    We have some threshold concerns about this bill. Certain 
provisions appear to endorse and strengthen private restraints 
contained primarily in the NCAA's rules on student athlete 
eligibility to participate in collegiate sports. The proposed 
legislation furthers the NCAA's rules prohibiting student 
athletes who wish to maintain their college eligibility from 
entering into sports agency contracts.
    Our general experience is that although many industry self-
regulatory programs provide significant and desirable 
protections for consumers, it is important to consider whether 
particular private restraints may function to protect the 
industry rather than consumers.
    For example, some have questioned the underlying basis of 
the NCAA's eligibility rules and how much of the revenue 
generated by college sports should flow to the students. 
Similarly, one might ask whether the government should endorse 
private NCAA rules that can result in the permanent loss of 
eligibility for even inadvertent violations.
    Losing eligibility can reduce the athlete's chances of 
playing professionally and cost the athlete a scholarship that 
provides an opportunity for a college education. Because of 
such questions, it is important that Congress carefully examine 
the effects of the underlying private restraints before 
adopting legislation that supports them.
    We are also concerned that some of the requirements in the 
proposed legislation are static. In particular, the required 
disclosure in the sports agent contract will apparently remain 
the same, absent additional Congressional action, even if at 
some future time the NCAA's eligibility rules change as the 
Olympic eligibility rules have changed. In such a case, not 
only may the disclosure itself become misleading, but the 
disclosure requirement could hamper otherwise worthwhile 
changes in the rules.
    Furthermore, although there is clearly no room in any 
transaction for the false or misleading statements the proposed 
legislation would prohibit, some conduct addressed in the 
legislation is acceptable in many other markets. It is 
problematic here only because of the NCAA rules.
    In particular, incentives as inducements to signing a 
contract are a common feature of marketing in many industries. 
Even understanding the vulnerability of many college athletes 
to tempting sales presentations with financial inducements, it 
may be possible to craft a less restrictive legislative 
proposal to address this concern.
    We would urge the subcommittee to examine these issues 
before enacting legislation. We have some suggestions to modify 
the proposed legislation to better achieve its objectives. 
First, Section 3 of the bill prohibits sports agents from 
giving false or misleading information. Such deceptive 
statements are already prohibited by Section 5 of the FTC Act 
and numerous little FTC acts.
    If Congress sees a need for additional avenues to challenge 
such practices, we believe that the most appropriate avenue 
would be a private right of action rather than additional 
public enforcement provisions. A private right of action for 
student athletes would enable individuals to vindicate their 
rights in specific cases that might not be appropriate for 
Commission action taken in the broader public interest.
    In addition, given the apparent close relationship between 
the proposed legislation and the existing NCAA rules, we 
suggest requiring a more complete disclosure of the 
circumstances that may lead to loss of eligibility under the 
rules. For example, we recommend amending several provisions of 
the legislation to clarify that a student athlete can lose 
eligibility by agreeing orally or in writing to enter into an 
agency agreement.
    The suggested changes to these provisions, as well as other 
suggestions to more closely conform the legislation to the NCAA 
rules or to State law, are set forth in more detail in the 
Commission's written statement.
    In sum, the FTC protects consumers from deceptive or unfair 
practices, but it generally focuses on acts and practices that 
affect a significant number of consumers or signify an emerging 
trend. We ask this subcommittee to examine carefully the need 
for and appropriateness of the underlying private restraint 
before enacting it into law.
    In the event this subcommittee continues with the proposed 
legislation, we have provided suggestions on how the 
legislation can be revised to better achieve its stated goals.
    Mr. Chairman, the FTC greatly appreciates this opportunity 
to testify, and I look forward to answering any questions you 
and the other members may have.
    [The prepared statement of Howard Beales follows:]
   Prepared Statement of Howard Beales, Director, Bureau of Consumer 
                  Protection, Federal Trade Commission
                            i. introduction
    Mr. Chairman and members of the Subcommittee, I am Howard Beales, 
Director of the Bureau of Consumer Protection at the Federal Trade 
Commission (FTC). I am pleased to be here today to discuss H.R. 4701, a 
bill known as the ``Sports Agent Responsibility and Trust Act'' that 
designates as deceptive or unfair certain conduct by sports agents 
relating to the signing of contracts with student athletes.1 
This testimony begins with a general overview of the FTC and its 
enforcement authority. Second, it discusses the criteria the Commission 
considers in deciding whether to challenge deceptive or unfair 
practices under existing authority. Third, it notes the Commission's 
concerns about certain provisions of H.R. 4701. Fourth, it suggests 
possible revisions to enable the legislation to better achieve its 
stated goal.
---------------------------------------------------------------------------
    \1\ This written statement presents the views of the Federal Trade 
Commission. My oral statement and responses to questions are my own and 
are not necessarily those of the Commission or any individual 
Commissioner.
---------------------------------------------------------------------------
            ii. the commission's consumer protection mission
    The FTC is charged with protecting consumers and promoting a 
competitive marketplace. The cornerstone of the Commission's mandate is 
Section 5 of the FTC Act, 15 U.S.C. Sec. 45, which prohibits ``unfair 
methods of competition'' and ``unfair or deceptive acts or practices.'' 
The FTC's consumer protection mission focuses on stopping actions that 
threaten consumers' opportunities to exercise informed choice. The FTC 
Act authorizes the Commission to halt deceptive or unfair practices 
through administrative cease and desist actions and equitable actions 
filed by FTC attorneys in federal district court. In appropriate cases, 
the Commission also may seek civil penalties, restitution to injured 
consumers, or disgorgement to the U.S. Treasury of defendants' ill-
gotten gains.
                        iii. the public interest
    The FTC has been directed by Congress to act in the public 
interest.2 When determining whether to initiate a law 
enforcement action, the Commission considers a number of factors, 
including: the type of violation alleged; the nature and amount of 
consumer injury at issue and the number of consumers affected; the 
likelihood of preventing future unlawful conduct; and the likelihood of 
securing appropriate relief, including redress. The Commission also 
considers to what extent states have regulated the area and the 
existence and effectiveness of appropriate voluntary industry standards 
and self-regulation.
---------------------------------------------------------------------------
    \2\ Section 5(b) of the FTC Act, 15 U.S.C. Sec. 45(b), provides 
that
    Whenever the Commission shall have reason to believe that any such 
person, partnership, or corporation has been or is using any unfair 
method of competition or unfair or deceptive act or practice in or 
affecting commerce, and if it shall appear to the Commission that a 
proceeding by it in respect thereof would be to the interest of the 
public, it shall issue . . . a complaint stating its charges.
---------------------------------------------------------------------------
    The Commission continually monitors trends and developing issues in 
the marketplace to determine the most effective use of its resources. 
The Commission, therefore, focuses its resources on cases involving a 
large number of complaints or other evidence that the deceptive or 
unfair act or practice is widespread or an emerging trend, rather than 
individual disputes. For example, because of numerous complaints 
regarding deceptive practices used by modeling scams to persuade young 
consumers or their parents to pay exorbitant up-front fees for 
unnecessary services, the Commission has brought a number of cases 
against these types of scams.3 Similarly, because of large 
numbers of complaints regarding scholarship service scams proclaiming 
``FREE MONEY FOR COLLEGE,'' the Commission has filed nine cases against 
11 companies and 30 individuals to combat this fraud.4
---------------------------------------------------------------------------
    \3\ See, e.g., United States v. National Talent Associates, Civ. 
Action No. 96-2617 (D.N.J.); FTC v. Screen Test U.S.A., Civ. Action No. 
99-2371 (WGB) (D.N.J.); FTC v. Model 1, Inc., Civ. Action No. 99-737-A 
(E.D.Va.) (the local Better Business Bureau had received more 
complaints about this company than any other in its history).
    \4\ FTC v. Career Assistance Planning, Inc., Civil Action No. 1:96-
CV-2187-MHS (N.D. Ga.); FTC v. College Assistance Services, Inc., Case 
No. 96-6996-CIV-Highsmith (S.D. Fla.); FTC v. Deco Consulting Services, 
Inc., Case No. 96-7196-CIV-Nesbitt (S.D. Fla.); FTC v. National Grant 
Foundation, Inc., Case No. 97-7339-CIV-Lenard (S.D. Fla.); FTC v. 
National Scholarship Foundation, Inc., Case No. 97-8836-CIV-Ferguson 
(S.D. Fla.); FTC v. Christopher Nwaigwe, Case No. 96-CV-2690 (D. Md); 
FTC v. Student Assistance Services, Inc., Case No. 96-6995-CIV-Roettger 
(S.D. Fla.); FTC v. Student Aid Incorporated, Case No. 96-CIV-6548 
(S.D.N.Y.); and FTC v. College Resource Management, Inc., Civil Action 
No. 3-01-CV-0828-G (N.D. Tex.).
---------------------------------------------------------------------------
      iv. threshold concerns about certain provisions of h.r. 4701
    Certain provisions of H.R. 4701 appear to endorse and strengthen 
private restraints contained primarily in the NCAA's rules on student 
athletes' eligibility to participate in collegiate sports.5 
The proposed legislation furthers the NCAA's rules prohibiting student 
athletes who wish to maintain their collegiate eligibility from 
entering into sports agency contracts. Specifically, the bill requires 
that any sports agency/representation contract include a disclosure 
clearly stating that the student athlete may lose eligibility if he or 
she signs the contract. The legislation also enacts a substantive ban 
on any gifts by sports agents to student athletes prior to the signing 
of a contract.
---------------------------------------------------------------------------
    \5\ It is our understanding that the Uniform Athlete Agents Act of 
2000, which has been adopted by a number of states, similarly endorses 
NCAA rules on agent contracts.
---------------------------------------------------------------------------
    Our general experience is that, although many industry self-
regulatory programs provide significant and desirable protection for 
consumers, it is important to consider whether particular private 
restraints may function to protect the industry rather than consumers. 
The Commission's extensive enforcement and oversight history with other 
self-regulatory industry organizations counsels us to advise caution 
before Congress enacts federal legislation to support or endorse 
specific non-public regulation. Academic articles on the effects of 
NCAA eligibility rules reveal diversity of opinion on their fairness 
and application.6 The public debate surrounding NCAA 
eligibility rules underscores the need for the careful examination of 
the effects of underlying private restraints before enacting 
legislation that supports them.7
---------------------------------------------------------------------------
    \6\ See, e.g., Arthur A. Fleisher III, Brian L. Goff, and Robert D. 
Tollison, The National Collegiate Athletic Association, A Study in 
Cartel Behavior (1992); Gary Roberts, The NCAA, Antitrust, and Consumer 
Welfare, 70 Tul. L. Rev. 2631 (1996); Kevin E. Broyles, NCAA Regulation 
of Intercollegiate Athletics: Time for a New Game Plan, 46 Ala. L. Rev. 
487 (1995); Lee Goldman, Sports and Antitrust: Should College Students 
be Paid to Play?, 65 Notre Dame L. Rev. 206 (1990).
    \7\ Cf. United States v. Walters, 997 F.2d 1219, 1224-25 (7th Cir. 
1993) (Court rejected use of the mail fraud statute ``to shore up the 
rules of an influential private association''' against a sports agent 
who secretly signed college football players to agency contracts before 
their college eligibility expired).
---------------------------------------------------------------------------
    We also are concerned that some of the requirements of the proposed 
legislation are static. In particular, the required disclosure in 
sports agent contracts will apparently remain the same, absent 
additional Congressional action, even if, at some time in the future, 
the NCAA's eligibility rules change, as the Olympic eligibility rules 
have changed. In such a case, not only may the disclosure itself become 
misleading, but the disclosure requirement could hamper worthwhile 
changes in the rules.
    Furthermore, although there is clearly no room in any consumer or 
commercial transaction for the false or misleading statements the 
proposed legislation would prohibit, some conduct addressed in the 
legislation is acceptable in many other markets. In particular, the use 
of incentives as inducements to signing a contract are common features 
of marketing in many industries. Even understanding the vulnerability 
of many college student athletes to tempting sales presentations with 
financial inducements, it may be possible to craft a less restrictive 
legislative provision to address this concern. We would urge the 
Subcommittee to examine these issues before enacting legislation.
           v. suggestions to modify the proposed legislation
    We have some suggestions to modify the proposed legislation. First, 
Section 3 of H.R. 4701 prohibits sports agents from giving false or 
misleading information--such deceptive statements that already are 
prohibited by Section 5 of the FTC Act and numerous state ``Little 
FTC'' Acts. If Congress sees a need for additional avenues to challenge 
such practices, we believe that the most appropriate avenue would be a 
private right of action rather than additional public enforcement 
provisions. A private right of action would enable individuals to 
vindicate their rights in specific cases that might not be appropriate 
for Commission action taken in the public interest. We note, however, 
that although Section 6 of H.R. 4701 provides for a private right of 
action to universities injured as a result of an agent's conduct, there 
is no similar private right of action provided to injured individual 
student athletes. Adding such a cause of action would further the 
proposed legislation's purpose to protect student athletes.
    In addition, given the apparent close relationship between the 
proposed legislation and the existing NCAA rules, we suggest requiring 
a more complete disclosure of those circumstances that may lead to loss 
of eligibility under the rules. Such a fuller disclosure would better 
provide student athletes with opportunities to exercise informed 
choices. For example, it is our understanding that the NCAA rules 
prohibit a high school or college student athlete from agreeing, either 
orally or in writing, to be represented by an agent (regardless of when 
the contract becomes effective). Accordingly, to better protect student 
athletes from unwittingly losing eligibility, the definition of 
``agency contract,'' which currently refers only to written contracts, 
should be amended to clarify that the agreement may be oral or written.
    In addition, Section 3(b) of the proposed legislation requires the 
agent to provide a written disclosure that the student athlete must 
sign before the student athlete signs an agency contract. Because NCAA 
rules prohibit a verbal commitment as well as a written commitment, we 
recommend modifying the language to require the disclosure before there 
are any substantive discussions regarding possible representation that 
might give rise to commitment.
    As another example, it is our understanding that NCAA rules 
prohibit student athletes, as well as family members and friends who 
may be able to influence a student athlete, from receiving any benefits 
or gifts from an agent. Accordingly, we recommend modifying Section 
3(a)(1)(B) to include providing anything of value to student athletes, 
family members, or friends who may influence a decision.
    Further, it is our understanding that state law may restrict some 
student athletes' ability to enter into a contract on their own due to 
their age, and that a parent or guardian must sign the contract on 
their behalf. To ensure the proposed legislation protects all student 
athletes, regardless of age, we recommend inserting ``or parent or 
guardian'' after ``student athlete'' in proposed Section 3(a)(2).
    Finally, we recommend that the Congress consider three 
modifications to the required disclosure set forth in Section 3(b). 
First, as a general matter, it has been our experience that disclosures 
in ``plain English,'' so consumers can easily understand them, are the 
most effective. Second, to avoid inadvertently misleading student 
athletes, the disclosure should both track the NCAA's current rules 
regarding oral or written commitments and provide for adjustments 
should the rules change. Third, although section 6 of the proposed 
legislation imposes on student athletes the obligation to notify their 
educational institutions within 72 hours after they have entered into 
an agency contract, the proposed legislation takes no steps to ensure 
student athletes are aware of this obligation. The required disclosure, 
therefore, should alert student athletes of their notification 
obligations under the proposed legislation.
                             vi. conclusion
    In sum, the FTC protects consumers from deceptive or unfair acts 
and practices, but it generally focuses on acts and practices that 
affect a significant number of consumers or signify an emerging trend. 
We ask this Subcommittee to examine carefully the need for and the 
appropriateness of the underlying private restraint before enacting it 
into law. In the event this Subcommittee continues with the proposed 
legislation, we have provided suggestions, based on our experience with 
consumer disclosures, on how the legislation can be revised to better 
achieve its stated goal.
    Mr. Chairman, the FTC greatly appreciates this opportunity to 
testify. I would be happy to answer any questions that you and other 
Members may have.

    Mr. Stearns. I thank the gentleman.
    Mr. Donnelly, we welcome your opening statement.

            STATEMENT OF JAMES F. ``BOOTS'' DONNELLY

    Mr. Donnelly. Before I begin, let me also thank Congressman 
Gordon and Congressman Osborne for their leadership in 
introducing the Sports Agent Responsibility and Trust Act.
    You know, I basically come as an athletic director, ex-head 
football coach for well over 22 years. The sports agent is a 
problem. It is a major problem. Congressman Osborne touched on 
just about everything that I will be touching on, but I can 
give you examples. He spoke earlier about an agent by the name 
of Bloom, who is--I believe he is still in prison.
    The sports agent Bloom was on my campus as far back as 
1986-87. He came in at 10:30 at night, went directly to an 
athlete that I had room, would not leave the room. We came very 
close to having a physical confrontation, not only a heated 
conversation with him. There were stretch limos, bodyguards, 
threats of physical harm to players, and later he ended up in 
prison.
    I come before you as a coach, as a member of Middle 
Tennessee State University, and we know what the problem is, 
because we have been there. We don't know what the solutions 
are.
    The biggest headaches that we have is Congressman Gordon--
Osborne, excuse me, spoke about the athlete and the agent. What 
it really brings down the pike is a tremendous amount of 
terrible publicity for the individual, university, and also for 
the athletic department at any university. And, you know, there 
are so many horror stories out there, and all of them are 
basically true.
    We even had a young man come to our campus and walk on, ask 
permission to walk on as a kicker, and stayed and befriended 
our players, took them to dinner, paid for movies, even went to 
Florida and different locations for vacation and became 
obligated, became very, very close friends of our players. And 
later on down the road they found out that he was a runner.
    Some of you may not understand who the runners are. The 
runners can be ex-players. The runners can be people that is in 
the community. Runners can be students. Runners can basically 
be anywhere, and we cannot get our hands on all of them. We 
have even had--agents have runners. Any time our basketball 
teams or whatever would fly commercially, they would get on the 
commercial flight to every location that you would play.
    Congressman Osborne spoke about agents being in the lobby. 
They are free to do that. They are free to get on commercial 
flights. They know exactly what they can and what they cannot 
do.
    He touched on also the athlete leaving school early. We 
have one currently left school at the end of the fall semester 
because he was drafted. The agent that he signed with convinced 
him that he needed to leave, go to the State of Florida, and 
spend the rest of the spring working out with a trainer or 
whatever it may be. And they get themselves obligated, and they 
get themselves in these binds, and they lose out for the last 
semester of school.
    So many things--so many ways they get to our athletes. We 
keep speaking of a runner. Does the athlete know what he is 
doing is right or wrong? In most of the cases they--probably 
all of the cases, the point that I want to touch on is that if 
you will look at where money is coming from--and there is 
millions of dollars in signing in the first round, the second 
round, and it is reduced down for the third. But where the 
majority of the money is made is in the first three rounds in 
the NFL draft.
    But you have 30 NFL football teams, so you are talking 
about 90 top athletes who are going to have the opportunity to 
make a large sum of money. But you have approximately 2,000 
agents that are registered with the NFL; 800 of them don't have 
an agent. So that is where everything starts trying to figure 
how, do you go about getting the upper hand on signing one of 
these top athletes, and they go through aunts, they go through 
uncles.
    And if you have ever gone into the inner cities down in the 
south, Georgia, the mountains of Tennessee, and see the 
economic background of these people, then you start 
understanding why it is pretty easy for these agents to entice 
them to get them to come and sign early with them, to take 
clothing or whatever it may be.
    So I am here to ask that you strongly consider this bill, 
pass this bill. There is no AD that I know, there is no 
university president that I know, there is no coach, that will 
not endorse this. And we need this bill passed as quickly as we 
can possibly get it passed, and I do thank you for my time.
    Thank you very much.
    [The prepared statement of James F. Donnelly follows:]
  Prepared Statement of James F. Donnelly, Athletics Director, Middle 
                       Tennessee State University
    I am James F. Donnelly, current athletic director and former head 
football coach for 22 years at Middle Tennessee State University. 
Middle Tennessee State University is located in Murfreesboro, Tennessee 
and is regarded as one of the leading universities in the region. 
Middle Tennessee competes at the highest level of intercollegiate 
athletics in 17 sports and is a member of the Sun Belt Conference. The 
university has an enrollment of over 20,000 students.
    Before I begin, I would like to thank Congressman Gordon and 
Congressman Osborne for their leadership in introducing the Sports 
Agent Responsibility and Trust Act (SPARTA).
    As of April 2002, the National Football League Players Association 
reported that there were 1,196 certified football agents, almost double 
the number from 10 years ago--over 800 of them, however, have no 
clients.
WHY COACHES AND UNIVERSITIES ARE CONCERNED ABOUT SPORTS AGENTS?
    1. In today's society, professional athletes are highly compensated 
and most have agents that perform valuable services.
    2. Unfortunately, the illicit practices of some of these agents, 
would-be agents and their runners have caused serious problems for 
student-athletes and educational institutions as these agents 
aggressively pursue the substantial fees that accompany the 
representation of professional athletes.
    3. These agents, motivated largely by financial considerations, are 
willing to use any means necessary to represent a student-athlete who 
has even a remote chance of playing professional sports. They 
frequently employ tactics that involve secret payments to friends and 
relatives who may be in a position to influence the athlete, 
unrealistic promises, and considerable arm-twisting.
    4. There can be significant damage that results from these 
impermissible and oftentimes illegal practices. Impermissible benefits 
provided by agents violate NCAA rules and may result in the following:

a. Student-athlete ineligibility for participation in NCAA competition.
b. Harsh penalties on the team and the university (including the 
        imposition of NCAA sanctions that have resulted in the 
        repayment of monies received from NCAA championship 
        competition, forfeiture of contests and other penalties).
c. Student-athletes may be enticed to pursue a professional career and 
        leave school early only to later realize that their agent gave 
        them bad advice.
WHY WE NEED TO ADOPT THE SPORTS AGENT RESPONSIBILITY AND TRUST ACT 
        (SPARTA).
    H.R. 4701 has many important features:

 The adoption of the Act will make it unlawful for an agent to: 
        Provide false or misleading information; Make false or 
        misleading promises or representations; Provide anything of 
        value to the student-athlete or anyone associated with the 
        athlete; Fail to disclose to the student in writing that they 
        may lose their eligibility to compete in collegiate sports 
        before signing a contract; or Predate or postdate contracts.
EXAMPLE #1
    Facts: In the mid-1980s, a high profile athlete was resting in his 
dorm room at approximately 10-10:30 p.m. when a sports agent and his 
entourage parked a limousine in front of the athletic dorm. The sports 
agent then walked into the dorm and went directly to the student-
athlete's room and knocked on the door. The student-athlete closed the 
door, then immediately called the head coach. The head coach went to 
the dorm and had a heated conversation with the agent, and eventually 
the agent left campus. Not only did the agent know the student-
athlete's room number, but he also had his phone number and he 
continued to call and harass the student-athlete.
    Institutional Action: During this time, an athlete was declared 
ineligible for the remainder of the athletic season if he had any 
lengthy conversations with a sports agent. The rule has now been 
changed to where the penalty is for signing with a sports agent.
EXAMPLE #2
    Facts: A student asked permission to become a walk-on for the 
football program. The student is full-time, joins the team and becomes 
friends with a number of team members. The student then pays for 
various meals, movies, and other entertainment as a friend of certain 
players. Later, the players and staff find out the student is actually 
a runner for a sports agent.
    Institutional Action: No action was taken since the athlete never 
met the agent.
EXAMPLE #3
    Facts: Student-athlete and his roommate traveled via automobile 
from certifying institution's community to Las Vegas, NV. Student-
athlete and his roommate stayed in Las Vegas April 6-10, 2001. 
Institution noted that student-athlete stayed in one hotel, and his 
roommate stayed at another hotel. A representative of a sports agency 
paid for student-athlete's roommate's hotel bill ($268.02). Student-
athlete noted that he was not aware that his roommate's hotel was paid 
for by the representative and did not become aware of the violation 
until he was questioned by institution. Institution noted that the 
representative was not aware that student-athlete and/or his roommate 
would be in Las Vegas during the time period in question. While in Las 
Vegas, student-athlete engaged in pick-up contests with other 
individuals. Student-athlete did not know the other individuals who 
participated in the pick-up basketball contests, except for one 
individual. Two professional sports agents were present at the pick-up 
basketball game. Student-athlete knew that the two individuals watching 
the pick-up basketball contests were professional sports agents, since 
he was previously introduced to the agents by a former teammate.
    Institutional Action: Institution required student-athlete to repay 
the value of the impermissible benefit to a charity of student-
athlete's choice.
EXAMPLE #4
    Facts: Student-athlete accepted transportation (13 blocks) from an 
individual who student-athlete knew was a runner for a sports agent. 
Student-athlete was also provided with the use of a leased 2002 Ford 
Expedition for approximately six weeks by an individual who met 
student-athlete during his freshman year at institution. Institution 
has valued the use of the vehicle at $807.57 due to the monthly lease 
payments of $538.38. Early in August, student-athlete had previously 
driven a 1994 Chrysler Sebring, which was owned by his mother until the 
brakes failed, and the car was towed for repairs. Early in September, 
student-athlete asked his roommate to give him a ride to a car 
dealership where student-athlete was dropped off. Student-athlete, the 
runner and a former student-athlete, now institutional groundskeeper, 
were at the dealership on the same day. Student-athlete states that the 
runner was not near student-athlete when he was looking at various cars 
and had a conversation with a sales manager. Student-athlete and former 
student-athlete left the dealership after looking at a number of cars. 
The runner and the sales manager then were engaged in conversation. 
After the conversation, a 2002 Ford Expedition was put on hold until 
November 18 in the runner's name. The runner then transported student-
athlete to his apartment from the dealership. Several days later the 
runner was with the individual at the dealership and the individual 
leased the same Expedition on September 15. Individual and student-
athlete then had a telephone conversation where the individual offered 
the use of the Expedition to student-athlete in light of student-
athlete's car being repaired. Several days later the individual dropped 
off the Expedition of student-athlete's apartment for student-athlete 
to use until student-athlete got his car back from being repaired. 
Student-athlete had use of the car for approximately six weeks.
    Institutional Action: Institution required repayment for use of the 
vehicle ($807.57). The student-athlete was withheld from 60 percent of 
the season.
EXAMPLE #5
    Facts: Prior to initial collegiate enrollment, student-athlete 
signed a contract with a sports management group. Student-athlete 
signed the contract in December 2000, at the age of 19. Under the terms 
of the contract the sports management group was to act as student-
athlete's manager and advisor. Student-athlete, a foreign student, 
signed the contract in an attempt to gain entry into higher caliber 
track meets. Specifically, the owner of the sports management group 
also serves as the media officer for the foreign country's Olympic 
team. Student-athlete hoped that his association with the sports 
management groups owner would assist him in gaining access to track 
meets that he would not have otherwise been invited to. Student-athlete 
did not receive any compensation or sponsorship agreements from the 
contract. Further, student-athlete did not gain entry to any track 
events. The contract was terminated as soon as the student-athlete 
learned that such a contract was not permissible under NCAA 
regulations.
EXAMPLE #6
    Facts: Student-athlete accepted a plane ticket ($339), 
transportation ($18.60) and a meal ($6.00) from an acquaintance that 
was a runner for an agent. While speaking to the acquaintance via 
telephone during the 2000 fall semester, student-athlete stated his 
desire to go a different city for the weekend because once applicant 
institution's basketball season began there would not be a break until 
the end of the season. Student-athlete's acquaintance purchased 
student-athlete an electronic plane ticket and met student-athlete at 
his arrival at the airport of the different city. Student-athlete's 
former high school classmate, also an elite Division I men's basketball 
student-athlete currently attending a separate institution located in a 
different city, was with student-athlete's acquaintance when 
acquaintance picked student-athlete up at the airport. Student-
athlete's acquaintance provided student-athlete with transportation and 
a meal during the weekend. At some point during the weekend student-
athlete's acquaintance informed student-athlete that he wished for 
student-athlete to meet an agent. After breakfast on Sunday morning, 
student-athlete's acquaintance transported student-athlete to the 
agent's home and introduced student-athlete to agent. The agent 
informed student-athlete that he wished to represent him when he became 
a professional athlete and student-athlete informed the agent that he 
would consider it. Student-athlete was interviewed three times and 
provided false and misleading information to institution and NCAA 
enforcement officials during first two interviews.
    Institutional Action: Institution withheld student-athlete from one 
exhibition contest, six regular season contests and required student-
athlete to repay benefits received from agent and/or runner.
CONCLUSION--I URGE CONGRESS TO ADOPT THE SPORTS AGENT RESPONSIBILITY 
        AND TRUST ACT (SPARTA)
    1. The Sports Agent Responsibility and Trust Act is strongly 
supported by the NCAA and its 1,000 member institutions. I think I 
speak for all my administrative and coaching colleagues in Tennessee 
when I say that we strongly urge Congress to adopt H.R. 4701 as quickly 
as possible.
    2. Will this be a panacea for all athlete agent problems? No. 
However, there is no question that the act will provide protections for 
student-athletes and institutions while also providing uniform rules 
across all states for agents to conduct their business.
    THERE'S NOT ENOUGH CATS (NCAA AND COACHES) TO CATCH ALL THE RATS 
(SPORTS AGENTS AND RUNNERS) IN INTERCOLLEGIATE ATHLETICS.
    FOR PROTECTION OF OUR ATHLETES ACROSS THE COUNTRY, I STRONGLY 
ENCOURAGE THE PASSAGE OF H.R. 4701.

    Mr. Stearns. Thank you, Mr. Donnelly.
    Mr. Saum, we welcome your opening statement.

                  STATEMENT OF WILLIAM S. SAUM

    Mr. Saum. Good morning. Thank you for opportunity to 
testify on behalf of The National Collegiate Athletic 
Association and to express our support for H.R. 4701, the 
Sports Agent Responsibility and Trust Act.
    The NCAA is a tax-exempt, unincorporated association of 
approximately 1,260 colleges, universities, athletic 
conferences, and related organizations devoted to the 
regulation and promotion of intercollege athletics for both 
male and female student athletes.
    As Director of Agent, Gambling and Amateurism Activities, 
and a former campus administrator and coach, I am acutely aware 
of the impact that the unscrupulous athlete agent can have on 
the lives of college student athletes. In today's society, 
professional athletes are highly compensated, and most have 
agents that perform valuable services.
    Unfortunately, the illicit practices of some of these 
agents, would-be agents, and their runners have caused serious 
problems for student athletes and our educational institutions 
as these folks have aggressively pursued the substantial fees 
that accompany the representation of professional athletes.
    These agents, motivated largely by financial 
considerations, are willing to use any means necessary to 
represent a student athlete who has even a remote chance of 
playing a professional sport. They frequently employ tactics 
that include secret payments or gifts, including autos, cash, 
clothing, and trips, given to the athlete, or undisclosed 
payments to friends and relatives who may be in a position to 
influence the athlete, or provide unrealistic promises and 
considerable arm twisting.
    There can be significant damage that results from these 
impermissible and often times illegal practices. Impermissible 
benefits provided by agents violate NCAA rules and may result 
in the following: student athlete ineligibility for 
participation in NCAA competition, harsh penalties on the team, 
the university, including the imposition of NCAA sanctions that 
have resulted in the repayment of monies received from 
participation in NCAA championships, and the forfeiture of 
contests and other penalties.
    SPARTA would make it unlawful for an agent to give false or 
misleading information, to make false or misleading promises, 
and to provide anything of value to the student or any 
individual associated with the student; fail to disclose in 
writing to the student that they may lose their eligibility to 
compete as a student athlete if they sign an agency contract; 
or pre-date or post-date contracts. All of these activities are 
necessary to protect our student athletes from unscrupulous 
sports agents.
    In addition, the NCAA strongly supports Section 7 of SPARTA 
that recommends States pass the Uniform Athlete Agent Act. The 
adoption of the State model creates a comprehensive uniform 
registration process that will provide important consumer 
information for student athletes, parents, and institutions, as 
they will have access to the detailed information contained in 
the agent application.
    Currently, the Uniform Athlete Agent Act has passed in 16 
jurisdictions, and we plan to work hard in the coming year to 
get it passed in more States. The NCAA has developed an arsenal 
of educational information on athlete agents, including videos 
that raise awareness about agents and NCAA rules, an NCAA 
information packet, including a list of questions that student 
athletes should ask when interviewing agents. Also, an 
important brochure entitled ``A Career in Professional 
Athletics'' is available to our member schools.
    The NCAA's Agent, Gambling and Amateurism Activities staff 
works closely with high school athletes, member institutions, 
and even sports agents organizations through the professional 
players associations. In short, we want to educate student 
athletes, athletic administrators, and agents, to prevent 
violations of NCAA rules and enforce the current agent 
regulations.
    Our member schools have developed a variety of programs to 
achieve these results. Several schools conduct agent days where 
a student athlete can meet with an agent in an organized and 
monitored manner. Many of our schools also conduct educational 
seminars for their elite athletes, which include alumni who 
have participated at the professional level. These alumni 
provide firsthand experiences for the enrolled student athletes 
to learn from.
    Finally, our schools provide a panel of experts that we 
call the Pro Sports Counseling Panel, for athletes to visit 
with regarding the search for an agent. SPARTA, in conjunction 
with the Uniform Athlete Agent Act in all 50 States, will 
provide important and necessary steps to address the problem of 
the unscrupulous athlete agent. The NCAA plans to continue its 
strong efforts and use its resources to pass the UAAA in the 
remaining States.
    Thank you for this opportunity, and we would be happy to 
answer any of your questions.
    [The prepared statement of William S. Saum follows:]
Prepared Statement of William S. Saum, Director of Agent, Gambling and 
    Amateurism Activities, National Collegiate Athletic Association
    I appreciate the opportunity to testify on behalf of the National 
Collegiate Athletic Association (NCAA) and to express our support for 
H.R. 4701, the Sports Agent Responsibility and Trust Act (SPARTA). The 
NCAA is a tax-exempt, unincorporated association of approximately 1,260 
colleges, universities, athletics conferences and related organizations 
devoted to the regulation and promotion of intercollegiate athletics 
for male and female student-athletes.
    As director of agent, gambling and amateurism activities, and a 
former campus administrator and coach, I am acutely aware of the impact 
that unscrupulous athlete agents can have on the lives of college 
student-athletes. In today's society, professional athletes are highly 
compensated and most have agents that perform valuable services. 
Unfortunately, the illicit practices of some of these agents, would-be 
agents and their runners have caused serious problems for student-
athletes and educational institutions as these agents aggressively 
pursue the substantial fees that accompany the representation of 
professional athletes. These agents, motivated largely by financial 
considerations, are willing to use any means necessary to represent a 
student-athlete who has even a remote chance of playing professional 
sports. They frequently employ tactics that involve secret payments or 
gifts (goods, autos, cash, clothing) to the athlete, undisclosed 
payments to friends and relatives who may be in a position to influence 
the athlete, unrealistic promises and considerable arm-twisting.
    There can be significant damage that results from these 
impermissible and oftentimes illegal practices. Impermissible benefits 
provided by agents violate NCAA rules and may result in the following: 
student-athlete ineligibility for participation in NCAA competition, 
harsh penalties on the team and the university (including the 
imposition of NCAA sanctions that have resulted in the repayment of 
monies received from NCAA championship competition, forfeiture of 
contests and other penalties.)
    The SPARTA would make it unlawful for an agent to give false or 
misleading information or make false or misleading promises or 
representations; provide anything of value to students or any 
individuals associated with these students; fail to disclose in writing 
to students that they may lose their eligibility to compete as student-
athletes if they sign an agency contract; or to predate or postdate 
contracts. All of these activities are necessary to protect our 
student-athletes from unscrupulous agents.
    In addition, the NCAA strongly supports Section 7 of SPARTA that 
recommends states pass the Uniform Athlete Agent Act. The adoption of 
the state model bill creates a comprehensive, uniform registration 
process that will provide important consumer information for student-
athletes, parents and institutions, as they will have access to the 
detailed information contained in the agent application. Currently, the 
Uniform Athlete Agent Act (UAAA) has been passed in 16 jurisdictions; 
we plan to work hard in the coming year to get it passed in many more 
states.
    The NCAA has developed an arsenal of educational information on 
athlete agents, including videos that raise the awareness about agents 
and NCAA regulations, an NCAA information packet and a list of 
questions that student-athletes should ask agents. Also, an important 
brochure entitled ``A Career in Professional Athletics'' is available 
to member schools.
    The NCAA's agent, gambling and amateurism activities staff works 
closely with high school athletes, member institutions and even agent 
groups, through the professional players associations. In short, we 
want to educate student-athletes, athletics administrators and agents, 
prevent violations of NCAA regulations, and enforce the current agent 
rules.
    Our member institutions have developed a variety of programs to 
achieve these results. Several schools conduct agent days where a 
student-athlete can meet with an agent in an organized and monitored 
manner. Many of our schools also conduct educational seminars for their 
elite athletes, which include alumni who have participated at the 
professional level. These alumni provide first-hand experiences from 
which enrolled athletes can learn. Finally, our schools provide a panel 
of experts (Pro Sports Counseling Panel) for athletes to visit with 
regarding the search for an agent.
    The SPARTA, in conjunction with the UAAA in all 50 states, will 
provide important and necessary steps to address the problem of 
unscrupulous athlete agents. The NCAA plans to continue its strong 
efforts and use its resources to pass the UAAA in the remaining states.

    Mr. Stearns. Thank you, Mr. Saum. I will start with my 
opening questions.
    Mr. Beales, in your opening statement, you talked about the 
FTC has the responsibility, is charged with protecting 
consumers, and, of course, at the same time promoting a 
competitive marketplace. You said the cornerstone of your 
responsibility is the implementing and enforcing of Section 5 
of the FTC Act, 15 U.S.C. 45, which prohibits unfair methods of 
competition and unfair or deceptive acts or practices.
    Now, has the FTC has been asleep at the wheel here? You 
heard two coaches talk. Why hasn't the Commission pursued any 
action against sports agents under Section 5, like you said in 
your opening statement?
    Mr. Beales. Typically, the way we approach case selection 
is we look for places where there are relatively widespread 
problems involving----
    Mr. Stearns. Obviously, there is widespread problem.
    Mr. Beales. [continuing] in particular a particular 
company. It may be that the heart of the difficulty here is 
that there is sort of one problem per agent because that is all 
the students that they represent. But in terms of the 
complaints that come to us, we don't have any complaints about 
problems that have involved sports agents.
    Mr. Stearns. We have heard complaints today.
    Mr. Beales. We certainly have.
    Mr. Stearns. Okay. You would agree on that.
    Mr. Beales. Yes.
    Mr. Stearns. Okay. Does that mean today you are going to go 
back and do something?
    Mr. Beales. Well, we haven't heard--and this is an area 
where if there was an agent that was systematically making 
misrepresentations to potential student athlete clients, we 
would certainly be interested in a case like that. That would 
be a violation of Section 5. It is something we would want to 
pursue.
    Mr. Stearns. But what do you have to do? What has to be 
initiated to get your attention? What do you consider in 
determining whether or not there is enforcement of Section 5? I 
mean, is there something that has not been brought here in this 
hearing that--are there other considerations that would get you 
folks galvanized to do something?
    Mr. Beales. Well, there are two primary considerations that 
go into all of our case selection decisions. One is the number 
of people affected, the number of----
    Mr. Stearns. It has to be more than one, two, five, a 
hundred? How many people have to be affected?
    Mr. Beales. There is not a bright line, but our alternative 
case might be something where there are millions of consumers 
affected.
    Mr. Stearns. Okay. So if----
    Mr. Beales. And there is a small resource allocation 
budget.
    Mr. Stearns. You wouldn't be concerned with a small number.
    Mr. Beales. Well, sometimes we do pursue cases where there 
are small numbers, where we see an emerging trend or a new 
practice that is--that we need to address as the particular 
practice. So it is not--I mean, there is not a bright line 
standard. But in terms of how we allocate our resources, we are 
looking for cases where there are larger numbers of people 
affected and larger injury per person affected. And that is--
there is nothing distinct about any particular industry that 
says it is in or it is out.
    Mr. Stearns. So that is the sum summary of whether you 
determine whether to act under Section 5, whether there is a 
lot of people and there is financial damage.
    Mr. Beales. Well, the damage doesn't have to be financial. 
The injury can occur in many sorts of ways. But whether--the 
number of people affected and the extent of injury, absolutely.
    Mr. Stearns. Has there been any case in which you have 
pursued, under Section 5 pertaining to this sports agent, in 
the history of the FTC?
    Mr. Beales. Not to my knowledge.
    Mr. Stearns. And why do you think that is? I guess because 
there has been no infractions?
    Mr. Beales. I don't think there have been any--we don't 
know of any infractions that have risen to a level that any 
prior Bureau director or Commission has thought warranted FTC 
action.
    Mr. Stearns. So the FTC's position, then, is that there has 
been no infractions that occurred that have--that would require 
your attention at this time. Am I pretty much putting into 
words what you are just saying?
    Mr. Beales. Not that there have been none, because we don't 
know that. But none that have come to our attention, I mean, 
which is a different statement.
    Mr. Stearns. You had mentioned in your testimony that you 
are afraid that H.R. 4701 is endorsing and strengthening the 
restraints imposed by a self-regulatory organization, namely 
the NCAA. Can you please explain what you mean by that?
    Mr. Beales. Well, the NCAA is a private organization. It 
represents, I am certain ably, the interests of the 
institutions that are part of it. It does not include other 
people who have an interest in the outcome of its rules and are 
affected by its rules, and it makes decisions based on what it 
sees as the public interest. But it is a private organization 
making that decision.
    It may be the right answer. Our only question--our only 
comment was that we think it makes sense for the Congress to 
look at whether those rules are the right rules before it 
enacts laws based on those rules.
    Mr. Stearns. Seventeen States have passed similar laws to 
this, like this, which, you know, implicit in these laws that 
they pass are the same thing they are endorsing and 
strengthening restraints imposed upon a self-regulatory 
organization. Do you think they are wrong in doing that?
    Mr. Beales. I have no idea the extent to which they looked 
at the rules, and that is all we are saying. If you assume the 
rules are the right rules, then a lot of this makes sense. That 
is--but our point is we don't have--we don't know that these 
are the right rules. It is not an area in which we have devoted 
any particular attention.
    We do know that private restraints tend to look out for the 
people who wrote the restraint, and they don't always serve the 
interests of consumers.
    Mr. Stearns. So, then, the position of the FTC, as I 
understand it this morning, is you do not endorse this bill.
    Mr. Beales. I think that is correct, yes, sir.
    Mr. Stearns. So you would say that we should rewrite it, or 
are you saying--are you saying that the FTC, under Section 5, 
can take care of this, and we need no legislation?
    Mr. Beales. For the parts that are deceptive or unfair 
practices, that we can do without legislation, if there are 
problems that are out there that would warrant our attention. 
Some parts of this, like, for example, the prohibition on 
gifts, would not, in ordinary circumstances, violate Section 5. 
I mean, that is a common practice, as I said, in a number of 
industries.
    So in other places, if you want to achieve that result, 
then you do need legislation. I think our comment is--goes 
mostly to what we think you should look at in making that 
decision, which is to look at the rules themselves as well as 
the conduct of the agents.
    Mr. Stearns. Okay. My last question. Mr. Donnelly, you had 
mentioned some of these problems. But as I understand from 
staff, the State of Tennessee passed a bill. Now, has that 
affected you in any way? I mean, has that--what they passed in 
the legislature----
    Mr. Donnelly. Well, they basically----
    Mr. Stearns. [continuing] made the problem go away for you 
as a coach?
    Mr. Donnelly. No, sir, it has not.
    Mr. Stearns. And why is that?
    Mr. Donnelly. Because the teeth of that law, they basically 
asked that each agent register with the State. The agents that 
have absolutely nothing to hide, the good agents----
    Mr. Stearns. They register. The runners and the illegal 
agents don't.
    Mr. Donnelly. The others don't. They don't.
    Mr. Stearns. So it still--the law has had no effect.
    Mr. Donnelly. It has no effect as--on the local level in 
our State. There is X number of very fine quality agents that 
come directly to you, directly to your office, or go by--
however you want it to be handled they will go by it. The 
others, they are like in the still of the night that they come 
in, and they go out. And once they get the athlete committed, 
then the athlete is not going to talk either, because they 
start threatening with whatever it may be.
    Mr. Stearns. Wow, what an awful scene to have a guy with a 
stretch limousine out there sitting in the locker--in the dorm 
talking to one of your key players, and you can't even get him 
out.
    Mr. Donnelly. Not only can you get him out, legality-wise 
he is free to come on our campus.
    Mr. Stearns. And go into the dorm like that and wake the 
player up and say, ``This is''----
    Mr. Donnelly. They can go up and down the halls, other than 
knocking on the door, and then intruding on a student, that 
became illegal. The problem at that time was that if our 
athletes spent any time whatsoever face to face talking with 
him, then he could have been declared ineligible.
    Mr. Stearns. And you as a coach can go into that dorm and 
tell him to leave and he won't leave.
    Mr. Donnelly. And he had the henchman or a muscle man with 
him and----
    Mr. Stearns. Body guards.
    Mr. Donnelly. [continuing] they later went on to become 
notorious in Sports Illustrated and----
    Mr. Stearns. I understand.
    Mr. Donnelly. [continuing] ended up serving some time.
    Mr. Stearns. Okay. Thank you.
    The ranking member, Mr. Towns.
    Mr. Towns. Thank you, Mr. Chairman.
    Mr. Saum, the last time you were here discussing the 
commercialization of amateur athletics, you stated that the 
NCAA has the ability to actually police itself. What brought 
about your change of heart?
    Mr. Saum. Change of heart in regards to this bill?
    Mr. Towns. Yes.
    Mr. Saum. There really has never been a change in heart. We 
have had a great couple months working with Representative 
Gordon and his staff in trying to work together in creating a 
bill that would meet his goals and also fit into some of our 
experiences of intercollegiate athletics.
    We found that by working with him that we could--we believe 
that this bill would be a very good Federal backstop to help 
prop up the State laws and work with our elite student athletes 
to assist them in working against the agents with the stories 
you have heard today that--and I can assure you from an angle 
of Coach Donnelly and Coach Osborne, I was a coach, and now my 
many years at the NCAA, those are very much true stories.
    Mr. Towns. In your opinion, is there such thing as a good 
agent?
    Mr. Saum. Well, I have heard Coach Osborne and Coach 
Donnelly say that there are. I suppose it is because of my job 
description, I would say I haven't met very many, because I 
work on--as Coach Osborne said, I am kind of the cop of the 
agent world for the NCAA. So I have not met very many good 
ones.
    Mr. Towns. How about you, Coach Donnelly?
    Mr. Donnelly. Let me add what we consider integrity of the 
sports agent is when we simply ask the agent, ``When you 
contact our players, please come through us,'' and the good 
ones do that. The others are not going to do that. That is what 
we consider a fine agent.
    Mr. Towns. Let me ask this question then. Do you think that 
paying these athletes might cut down on some of the 
misbehavior? I have heard of stories where an athlete's uncle 
or aunt dies, and they don't have the money to return home. 
This agent gives them the money and violates NCAA rules.
    If they were paid, they would probably have the money to go 
home and do whatever else they wanted to do. They could get in 
a taxi and ride wherever they want to go and avoid a ride from 
somebody they shouldn't be riding with.
    So what do you think about athletes being paid?
    Mr. Donnelly. Well, I am--let me say this first. We have an 
emergency loan situation for our student athletes now that we 
did not have 5 years ago, 6 years ago.
    Mr. Towns. How does that work, Coach?
    Mr. Donnelly. It works great. It works unbelievably well 
for the athletes. If you do have an emergency and you need to 
get home, they make it home now. And you are correct, 10 years 
ago or so, or 8 years ago, you could not do that.
    To pay an athlete, where do you start? Where do you stop? I 
am from basically the old school. We have got an awful lot of 
students that they pay their way to go to college, and they 
work at the 7-Eleven, or they work at wherever, the pizza 
place, and they pay the money to get the education. We pay 
other students to come to our university to play sports.
    How much money do you want in their back pocket? And the 
bottom line is agents will just escalate the amount of money 
that they are going to give. As opposed to giving X number of 
dollars, they are just going to move it up if a kid has got a 
little bit more money in their pocket.
    Ninety-nine percent of your problem is they come from 
broken homes, they come from low economic areas, where the 
flash, people driving around with the stretch limos with the 
Mr. T starter kits around their neck, showing a lot of hundred 
dollar bills, impressive, 19-, 20-, 21-, 22-year old kids. And 
paying them X number of dollars is not going to solve our 
problem.
    Mr. Towns. Mr. Saum?
    Mr. Saum. Mr. Towns, Coach Donnelly began with the 
explanation of the emergency student loan program, and that is 
not only individual campuses but that comes from the television 
contract. We talked about that last time we were here. There is 
over $15 million in that fund, and our student athletes can ask 
for money to do just about anything they need that they believe 
is an emergency.
    Our student athletes also at our Division I institutions 
receive their Pell money. And then, finally, we--I am happy to 
say that one thing that has changed since the last time that I 
was fortunate enough to testify here is that we now have what 
we call fee for lesson that has been okayed at the Division I 
level.
    And to explain it very simply, it is where a quarterback 
can go out this summer and teach young kids how to throw the 
football and be paid for it. Now, in the past, we had a rule 
that prohibited basically--and, again, I am simplifying this--
prohibiting the athlete to use their ability to make money 
during the summer. So we have now found another way that I 
think can be a benefit to them.
    The other quick item, if you would permit me to say, is 
that in my experiences over the last 14 years, student athletes 
who have received benefits from agents didn't take meal money, 
laundry money, or pizza money. They are taking SUVs. They are 
taking women. They are taking limos, hotels, airline trips, 
trips to Vegas, etcetera. So paying a student athlete a nominal 
amount would not solve this issue at all.
    Mr. Towns. In your testimony, Mr. Beales, you cite specific 
concerns, but you also give some suggestions for improving the 
bill. If those cited provisions were altered, would the 
Commission be inclined to support this legislation?
    Mr. Beales. Well, I don't think the Commission has a 
position either for or against the legislation. I think our 
threshold reservation goes to what should be examined in--to 
what Congress should examine in deciding about this 
legislation, and that is that it should look at the underlying 
rules that the legislation would help enforce.
    Mr. Towns. Let me just ask one last question. I am just 
trying to figure out an effective way to deal with these 
agents. Is the penalty in the legislation harsh enough? Either 
one of you.
    Mr. Donnelly. I think it is a great start as opposed to 
where the penalties could end up. But right now, I think it 
gives us a little bit of teeth in being able to sit down with 
our athletes knowing that the agent is going to have to expose 
if he doesn't, and is going to end up being, if I am reading it 
correctly, $11,000 for each offense each day, or whatever it 
may be.
    It is better than what we have had it. It has not worked on 
the individual State level. And, again, I strongly--we need to 
get something enacted as quickly as we possibly can. August 
camps are starting. We need to go back and start pushing, 
because agents have been on my campus this summer. We have a 
couple of high-profile athletes. They have been in the dorm. 
They have already spoken to them, and they have the telephone 
numbers of the girls, aunts, uncles, cousins. They have got it 
all, and we need to get something out there as quickly as we 
possibly can.
    Mr. Towns. Let me say this in closing. I think this is very 
serious, and I find it upsetting----
    Mr. Donnelly. It is serious.
    Mr. Towns. [continuing] that both the success of a program 
and the career of an athlete can be jeopardized by the 
tampering of an unscrupulous agent. I hope that we really move 
forward with the legislation and clean this whole mess up. 
Those agents out there have to be held accountable, and I am 
not sure that the existing penalties are sufficient to do so.
    Anyway, the bill is a step in the right direction, and I am 
for it.
    Mr. Stearns. I thank my colleague and recognize the 
gentleman from Tennessee.
    Mr. Gordon. Thank you.
    The last time the NCAA was here my good chairman and friend 
pointed out to me after the hearing that I was a little 
obnoxious. I think that he was more courteous and said 
aggressive. So let me today say, Mr. Saum, that I appreciate 
your cooperation and work. I think we have come up with a good 
product, and you have been helpful, and so, again, I thank you 
for that.
    And, Mr. Beales, sort of understanding where you come from, 
I don't--I will just paraphrase. If I am off base, you can tell 
me. But it was--FTC has to sort of look at the big picture. You 
know, if there is telecommunication fraud, or whatever, and 
there is millions of people involved, you have got so many 
folks, so much time, and that is simply where you have got to 
put your, you know, time rather than a few hundred that might 
be affected with this sports agent bill.
    I would point out a couple of things. One, my grandfather 
used to tell me that the most important road in the county was 
the one in front of your house. So, you know, for these kids 
and their parents and the schools, it is pretty important to 
them.
    I would also point out that, really, you are a conduit, in 
that we are using your authority to deputize State attorney 
generals, and that it is really not going to be taking a lot of 
the FTC's time, or any for that matter. So I would point that 
out.
    Also, you mentioned that there is already laws against--or 
that the FTC has authority against giving false or misleading 
information. That is correct. However, it is only a cease and 
desist, at least on the first time out. So I think this gives 
more teeth and provides a number of other types of remedies.
    So with that said, let me move to Coach Donnelly. Coach 
Donnelly, you I think made a good point, and I want to be sure 
that everybody understands. This is really more than the sports 
agents. Sports agents I guess is where it all starts, but the 
real problem, or everyday problem, are these runners. And they 
are the ones that are coming in and really causing the problems 
or being the closest on campus.
    This legislation extends to those runners. So it is not 
just the sports agent, but it extends to the runners or any 
type of person that may be carrying their water. I wanted to 
point that out.
    And, finally, you know, trying to--you know, again, this--
everybody sort of says, ``Well, golly, let us get on with this. 
What is--you know, why wouldn't you do this?'' I guess the best 
case that I can think of why you wouldn't do this was raised 
the other day with me, and a sports writer said, ``Well, 
listen, you know, these are 20-year old kids. They know the 
rules. You know, the coaches have told them this over and over. 
The NCAA tells them what they are supposed to do.'' I mean, how 
much hand-holding, you know, do we really need to do?
    So I will--if that is the best case, what is the best 
answer?
    Mr. Donnelly. Well, you know, I don't know if there will 
ever be a best answer or an absolute answer. But regardless of 
whether they are 20, 21, 22, the education is there, through 
the universities, through the NCAA----
    Mr. Gordon. I am sorry, Coach. What I mean is, what is the 
answer to folks that say, ``Don't pass this because these kids 
know what they are getting into, and we can't hold their hand 
for the rest of their life''?
    Mr. Donnelly. Well, no, we can't hold their hands for the 
rest of their lives, but we can continue to put the teeth into 
a bill that will take a 35-, 40-year old that continuously 
impresses, induces, lies to, whatever it may be, a 20-, 21-, 
22-year old. And you have got to remember this, in my opinion: 
they are not going after the highly intelligent No. 1 draft 
choice in the country.
    They are going after the people that they know that they 
can induce because of the socioeconomic background of which 
these people come from. Regardless of whether you are 22 years 
old, if you are living in a double-wide trailer, and you don't 
have the accommodations of other people, you are going to help 
your mother out if you get an opportunity.
    And that is where they bleed you. They go through the back 
door. They don't come through the front door. ``By signing with 
us early, we will help pay for your rent. Your mother is 
getting ready to be evicted.'' Whatever it may be. That is 
tough for a 21- or 22-year old not to accept. Even--they state 
to them, ``Even if you lose your eligibility, you are going to 
still be a No. 1 draft choice, No. 2, No. 3.''
    Whether it materializes or not, I don't think there is a 
person in here that, if you have ever been raised that way, 
would not understand why they take it, regardless of what and 
how you have educated them. It is just they have to get out of 
that environment. That is the quickest and easiest way to do 
that.
    So that is the reason the teeth has to be in the bill to 
punish the runner and to punish the people that are trying to 
induce them to take what is not right.
    Hopefully, I answered that correctly. I don't know.
    Mr. Gordon. Thank you, sir.
    I think my light went on.
    Mr. Stearns. I thank the gentleman.
    The gentlelady from Colorado, Ms. DeGette.
    Ms. DeGette. Thank you, Mr. Chairman. And first, let me 
apologize for my tardiness. As usual, I am double set with 
hearings this morning, so I was at another hearing.
    I just have a couple of quick questions to follow up on 
some of the earlier questioning. I would like to welcome our 
witnesses. I know that the chairman posed the question about 
whether Federal legislation was really necessary to enact these 
kind of non-public regulations. And I am wondering if perhaps, 
Mr. Beales, you could address the issue of what harm there 
might be in enacting this type of regulation, and if there is 
any precedent for this that we know of.
    Mr. Beales. Well, you would have to look more closely at 
the rules themselves to say what harm there might be. But the 
potential harm is there are things that the rules prohibit, 
which may or may not be good things to prohibit, that you are 
writing into Federal law. And I think our point is that you 
should think about the underlying conduct that the rules 
restrict and not just the fact that it is an NCAA rule.
    I mean, the damage to the institution, for example, of the 
institution getting suspended for the conduct of student 
athletes is a consequence of the rule. It is not a consequence 
of the conduct, and maybe that is a good thing, but maybe not, 
but that is what the question ought to be.
    Ms. DeGette. I mean, don't we have other legislation, 
though, where you might want--where the actual legislation is 
stating the policy, and you might have to change the rules in 
some way to enact the policy?
    Mr. Beales. Sure. But those are usually cases where the 
rules are written by some governmental agency, as opposed to a 
private party.
    Ms. DeGette. I see. Do you know of any other precedent 
where there is a law enacted that promulgates privately enacted 
rules? That is exactly the issue here.
    Mr. Beales. There are--not that I know of. It is 
conceivable that there are some. I don't know of any off the 
top of my head.
    Ms. DeGette. Okay. Mr. Saum, do you know of any situations 
like this, where there is a statute that is basically enacting 
private--rules of a private organization?
    Mr. Saum. Well, my answer to that is no, but I am also not 
qualified to answer that question.
    Mr. Gordon. If my colleague would----
    Ms. DeGette. Happy to.
    Mr. Gordon. Most recently, the Gram-Leach-Bliley 
legislation that we passed gave their regulators the ability to 
regulate within their own industry and gave them penalties to 
go forward with that----
    Ms. DeGette. But those----
    Mr. Gordon. [continuing] an insurance regulation.
    Ms. DeGette. But that was over--you are exactly right.
    Mr. Gordon. In other words, it gave them the Federal 
authority to regulate--to enforce their regulations that they 
put forth.
    Ms. DeGette. Right. But the reason we did that in Gram-
Leach-Bliley, as I recall--I, by the way, am not taking----
    Mr. Gordon. Surely. Sure.
    Ms. DeGette. As a matter of fact, my own State of Colorado 
has this law on the books. But what we did in Gram-Leach-
Bliley, as I recall, because we didn't want to set up a whole 
new insurance regulatory agency, we allowed the current 
regulatory structure to stay in place. But I think that is 
different than just wholesale enacting these private rules that 
apply to student athletes, but I might be wrong, and I think 
that is a really good example of a place that we did it.
    Let me ask both the coach and also Mr. Saum this question. 
You know, I understand the need to protect student athletes 
from unfair and deceptive acts and practices of agents. But 
under this legislation, colleges and universities also would be 
protected if this conduct occurred. And I am wondering, what is 
the public policy reason to do that? What is the public policy 
reason to protect the colleges and universities?
    Mr. Donnelly. If we find that a basketball player has 
signed early and that basketball team wins the NCAA Final Four, 
that money is returned, and it is an astronomical amount of 
money that they would garner from winning the championship.
    The NCAA strips them of the championship. The university 
receives a tremendous amount of very poor publicity. The 
athletic director, the coach, is held responsible. The player, 
again, can go on and be drafted No. 1 in the NBA. He is not 
hurt. The money that is lost to the university, the prestige 
that is lost to the university, the criticism that the coach 
and the athletic department gets is severe.
    Ms. DeGette. If I just may follow up on that, but--but the 
whole concept is we need to protect these unsophisticated 
athletes. Certainly, you would not argue that the colleges and 
universities are also----
    Mr. Gordon. If you would yield, I think I can answer that. 
The purpose was not so much to protect the colleges and 
universities, but another vehicle for enforcement. In other 
words, certainly the colleges and universities had damages, and 
it would be good for them I guess to be reimbursed.
    What you have is the FTC is going to say, ``We don't have 
time to go after all of these sports agents.'' Other people may 
say, ``We don't have time to go after all of these sports 
agents.'' So by virtue of giving the universities the right of 
action, then they can go after the agents, and that is another 
way to help control them. And so, really, it is not a matter of 
protecting universities. It is giving a right of action so you 
have one more policeman on the street trying to stop this 
activity.
    Ms. DeGette. Right. I think the right of--reclaiming my 
time, I think the right of action is a good thing. But doesn't 
the legislation also protect them from liability?
    Mr. Gordon. No. If you would yield, no. I don't think it 
protects them from liability. It gives them a right of action 
to collect damages.
    Ms. DeGette. Okay. All right.
    Mr. Gordon. And so that is what--you know, and, again, I 
think those damages are real. But the purpose--the real purpose 
in this really is more the additional policemen than it is to 
protect the university.
    Ms. DeGette. That is not how I read the bill, but I will 
take your assurances, Mr. Gordon.
    Thank you, and I will yield back.
    Mr. Stearns. Yields back. Would my colleagues--any other 
questions that they would have?
    If not, let me just sum up and thank the witnesses. Mr. 
Beales, I think I am trying to sort of sum up what you said 
when you said your extensive enforcement and oversight history 
with self-regulatory industries, organization, you sort of 
counseled the committee to use caution before Congress enacts 
Federal legislation to support or endorse specific non-public 
regulation. I think that sort of sums up what you say--to use 
caution.
    Mr. Beales. I think that is a fair summary. Many times 
those private restrictions are very useful and very good, and 
sometimes they are not.
    Mr. Stearns. Yes. But wouldn't you also agree that if 
Congress deems a specific non-public regulation good public 
policy, it could actually codify such regulation?
    Mr. Beales. Sure. If indeed it deems it good public policy, 
but that I think is the question.
    Mr. Stearns. Yes. So I think that is where perhaps our 
hearing sort of hinges on, and that is where we are at.
    Yes?
    Mr. Gordon. Just one final thing. Let me just say that I am 
thoroughly convinced that this legislation is done for the 
right reasons and will be helpful. But also, let me point out 
that all wisdom doesn't originate immediately, even sometimes 
with me, and that the purpose of these hearings is to bring 
additional information, and I think we are going to have a 
better bill because of the questions that Ms. DeGette has asked 
and that Mr. Beales has brought forward. We want to take these 
things in and try to have a better bill.
    We are also somewhat handcuffed by--you are somewhat 
pushing from behind in trying to get a remedy for these kind of 
problems. And so it is not the cleanest way, but I think it is 
a way--it is the best way within the tools that we have. So, 
again, we are listening to all that you have to say. And 
because of that, I think we are going to have a better bill. 
And certainly, I think this is going to benefit our country and 
a lot of individuals.
    Ms. DeGette. Let me just say----
    Mr. Stearns. Yes.
    Ms. DeGette. [continuing] add my 2 cents, Mr. Chairman. I 
also support the legislation. I just want to make sure that we 
write it as narrowly as possible to achieve the intended goal. 
One thing I have learned in my years in legislative services is 
about the law of unintended consequences. Talking about Gram-
Leach-Bliley, for example, you know, we are still dealing with 
the fallout from that bill.
    I really want to thank the sponsors for bringing it up, and 
I do think it is a growing problem in college athletics and one 
we need to deal with.
    Mr. Stearns. I thank the gentlelady. And thank you for your 
patience while we had to go vote.
    The hearing is adjourned.
    [Whereupon, at 12:14 p.m., the subcommittee was adjourned.]

                            
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