    [Senate Hearing 111-352]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 111-352

        THE BOWL CHAMPIONSHIP SERIES: IS IT FAIR AND IN COMPLIANCE WITH
                                 ANTITRUST LAW?

    =======================================================================

                                    HEARING

                                   before the

                           SUBCOMMITTEE ON ANTITRUST,
                     COMPETITION POLICY AND CONSUMER RIGHTS

                                     of the

                           COMMITTEE ON THE JUDICIARY
                              UNITED STATES SENATE

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  JULY 7, 2009

                                   __________

                              Serial No. J-111-35

                                   __________

             Printed for the use of the Committee on the Judiciary

                      U.S. GOVERNMENT PRINTING OFFICE
    55-645                    WASHINGTON : 2010
    -----------------------------------------------------------------------
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                      PATRICK J. LEAHY, Vermont, Chairman
    HERB KOHL, Wisconsin                 JEFF SESSIONS, Alabama
    DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
    RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
    CHARLES E. SCHUMER, New York         JON KYL, Arizona
    RICHARD J. DURBIN, Illinois          LINDSEY O. GRAHAM, South Carolina
    BENJAMIN L. CARDIN, Maryland         JOHN CORNYN, Texas
    SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
    AMY KLOBUCHAR, Minnesota
    EDWARD E. KAUFMAN, Delaware
    ARLEN SPECTER, Pennsylvania
    AL FRANKEN, Minnesota
                Bruce A. Cohen, Chief Counsel and Staff Director
                      Matt Miner, Republican Chief Counsel
                                     ------

       Subcommittee on Antitrust, Competition Policy and Consumer Rights

                         HERB KOHL, Wisconsin, Chairman
    CHARLES E. SCHUMER, New York         ORRIN G. HATCH, Utah
    SHELDON WHITEHOUSE, Rhode Island     CHARLES E. GRASSLEY, Iowa
    AMY KLOBUCHAR, Minnesota             TOM COBURN, Oklahoma
    EDWARD E. KAUFMAN, Delaware
    ARLEN SPECTER, Pennsylvania
    AL FRANKEN, Minnesota
           Carolina Holland, Democratic Chief Counsel/Staff Director
                     Jace Johnson, Republican Chief Counsel

                                C O N T E N T S

                                  ----------

                        STATEMENTS OF COMMITTEE MEMBERS

                                                                       Page
    Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin......     1

                                   WITNESSES

    Brett, Barry, Esq., Partner, Troutman Sanders, New York, New York     8
    Monts, William, III, Esq., Partner, Hogan and Hartson,
      Washington, D.C................................................    12
    Perlman, Harvey, Chancellor, University of Nebraska-Lincoln,
      Lincoln, Nebraska..............................................    10
    Young, Michael, President, University of Utah, Salt Lake City,
      Utah...........................................................     6

                           SUBMISSIONS FOR THE RECORD

    Brett, Barry, Esq., Partner, Troutman Sanders, New York, New
      York:
        statement....................................................    33
        FoxSports.com, December 12, 2008, article....................    61
        FoxSports.com, November 25, 2008, article....................    65
        FoxSports.com, March 13, 2006, article.......................    66
        FoxSports.com, July 20, 2007, article........................    68
        FoxSports.com, BCS Chronology, article.......................    70
        Global Competition Policy, May 2009, article.................    78
        Rush, Hon. Bobby L., a U.S. House of Representatives from the
          State of Illinois, statement...............................    86
        Bleymaier, Gene, Director of Athletics, Boise State
          University, Boise, Idaho, statement........................    88
        Fox, Derrick, President and Chief Executive Officer, Valero
          Alamo Bowl, San Antonio, Texas, statement..................    91
        Troutman Sanders, charts.....................................    99
        Hatch, Hon. Orrin, a U.S. Senator from the State of Utah,
          news release and letter....................................   106
        Troutman Sanders, charts.....................................   108
        Mountain West, Colorado Springs, Colorado, proposal..........   110
        Troutman Sanders, charts.....................................   123
        Law360, New York, New York, article..........................   127
    Kaplan, Paul Michael, Esq., Partner, and Jennifer L. Bougher,
      Esq., Associate, Arent Fox LLP, Washington, D.C., statement and
      attachments....................................................   137
        Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah,
          and Hon. Robert F. Bennett, a U.S. Senator from the State
          of Utah, May 8, 2009, letter...............................   163
        Frohnmayer, Dave, President, University of Oregon, and John
          D. Swofford, Commissioner, Atlantic Coast Conference, June
          9, 2009, letter............................................   165
    Kustra, Bob, President, Boise State University on behalf of
      Presidents and Chancellors, Western Athletic Conference,
      statement......................................................   171
    Monts, William, III, Esq., Partner, Hogan and Hartson,
      Washington, D.C., statement....................................   174
    Perlman, Harvey, Chancellor, University of Nebraska-Lincoln,
      Lincoln, Nebraska, statement...................................   185
    Swofford, John D., Commissioner, Atlantic Coast Conference,
      Greensboro, North Carolina, statement..........................   195
    Thompson, Craig, Commissioner, Mountain West Conference, Colorado
      Springs, Colorado, statement...................................   207
    Young, Michael, President, University of Utah, Salt Lake City,
      Utah, statement................................................   230

        THE BOWL CHAMPIONSHIP SERIES: IS IT FAIR AND IN COMPLIANCE WITH
                                 ANTITRUST LAW?

                                  ----------

                             TUESDAY, JULY 7, 2009

                                           U.S. Senate,
                 Subcommittee on Antitrust, Competition Policy,
                                            and Consumer Rights
                                    Committee on the Judiciary,
                                                       Washington, D.C.
        The Committee met, pursuant to notice, at 2:30 p.m., in
    room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl,
    Chairman of the Subcommittee, presiding.
        Present: Senators Kohl, Schumer, and Hatch.

     OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE
                           STATE OF WISCONSIN

        Chairman Kohl. Good afternoon to everybody here today.
    Today we will examine the state of competition in the college
    football Bowl Championship Series. College football is a sport
    enjoyed by millions of fans and is the central focus of the
    athletic programs at dozens of colleges and universities across
    our great Nation.
        I myself, of course, am a Badger fan and a fan of the Big
    10. The revenues derived from participation in the end-of-year
    college football bowl games are essential to supporting college
    athletic departments. Dozens of lower-profile sports enjoyed by
    thousands of students are funded by successful college football
    programs.
        The Bowl Championship Series was created more than a decade
    ago in an effort to find a fair and equitable way to select
    universities to participate in the lucrative end-of-year bowl
    games and in order to have an objective means to select teams
    to participate in a National Championship game.
        While many believe this system is working well, critics of
    the BCS argue that it unfairly disadvantages those universities
    that are not aligned with the large athletic conferences.
        Today's hearings will be an examination of whether the
    current BCS system truly serves the interest of competition of
    universities and of millions of college football fans. Today's
    hearing was called at the request of Senator Orrin Hatch, and
    so I will now turn over the gavel to my good friend and our
    esteemed Ranking Member who will chair and conduct this
    hearing.
        I thank Senator Hatch for his work on this issue, and I
    also thank our panel of witnesses for the testimony that they
    will be offering today.
        Senator Orrin Hatch.
        Senator Hatch [Presiding.] Well, thank you, Mr. Chairman.
        Mr. Chairman, I appreciate your willingness to schedule
    this hearing because I believe it will address a number of
    important issues, not the least of which is the legality of the
    Bowl Championship Series. I continue to enjoy our long service
    together on this Committee, Mr. Chairman, due in large part to
    your willingness to work with those of us on both sides of the
    aisle to address a wide variety of issues. Indeed, your
    willingness to address the concerns of members from both
    parties is almost unheard of in today's very partisan climate.
        Turning to the BCS, I think we all know Congress' interest
    in this issue in not a recent development. In the 10 years the
    BCS has been in existence, numerous congressional committees
    have held hearings to examine the legal and consumer protection
    issues associated with the BCS system. In fact, I chaired a
    hearing in the full Judiciary Committee on this issue in 2003.
    And over the years some changes have been made to the BCS
    system. Ostensibly, the system is now more open to non-
    preferred conferences than it once was. However, even with
    these changes in place, the BCS continues to place nearly half
    of all the schools in college football at a competitive and,
    perhaps more importantly, a financial disadvantage.
        These disadvantages are not the result of fair competition,
    but of the inherent structural inequities of the BCS system.
    And for these reasons, I believe that this hearing is necessary
    today. There is no shortage of opinion and ideas on how the BCS
    system should be changed. Indeed, I think any time college
    football fans gather together to watch a game, one of them has
    a playoff idea that they believe will solve all of college
    football's problems.
        For today I think our time would be best served by leaving
    the debate over such alternatives in the living rooms of our
    country and instead focus on answering one question: Does the
    BCS comply with the law?
        The law requires that all business enterprises meet certain
    standards with regard to pro- and anticompetitive behavior. Our
    focus should, therefore, be on comparing the current system
    with the standards required by our Nation's antitrust laws.
        Personally, I believe there are enough antitrust problems
    with the current BCS system that we will have more than enough
    material to cover during the course of this hearing. Put
    simply, Section 1 of the Sherman Antitrust Act prohibits
    contracts, combinations, or conspiracies to limit competition.
    I have said before that I do not believe a plainer description
    of the BCS exists.
        The system itself is an agreement between the preferred
    conferences and the major Bowl Games as to how they will
    compete with one another and, more apparently, how they will
    compete against the non-preferred conferences. More still,
    under the current BCS regime, each of the six privileged
    conferences is guaranteed to receive a large share of the BCS
    revenue to distribute among their member schools.
        The remaining five conferences, which include nearly half
    of all the teams in Division I, all share a much smaller
    portion of the BCS revenue, even if one of their teams is
    fortunate enough to play their way into a BCS game.
        Over the lifetime of the BCS, the preferred conferences
    have received nearly 90 percent of the total revenues. These
    disparities are explicit in the BCS arrangement. It brings to
    mind the major Supreme Court decisions prohibiting price fixing
    and horizontal restrictions on output. Under Section 1, such
    arrangements are prohibited.
        Section 2 of the Sherman Antitrust Act is violated when one
    is in possession of monopoly power and uses that power in a way
    not associated with growth or development as a consequence of
    having a superior product or business acumen. I think there is
    a strong argument that the BCS may very well be in violation of
    that provision as well.
        Practically speaking, there are two relevant markets in
    question here. Given the drastic difference between the
    revenues and the prominence of the BCS bowls when compared to
    other bowl games played throughout late December and early
    January, I think it is safe to conclude that the BCS bowls
    constitute a market that is all their own. And if Supreme Court
    precedence has any relevance here, the National Championship
    game also constitutes a separate market.
        The BCS enjoys a monopoly over both these markets and has,
    through what appears to be deliberate action, restricted the
    ability of teams from non-privileged conferences to
    participate.
        The BCS selects participants primarily through the use of
    subjective polling, complex computer ranking systems, and a set
    of biased selection criteria. Not surprisingly, this system
    expressly limits the number of outside teams that are able to
    qualify for one of the lucrative and prestigious BCS bowl
    games.
        Take last year, for example. In 2008, two teams--Utah and
    Boise State--met the qualifications for the automatic BCS
    berth, but under the rules only one of them, the University of
    Utah, was invited to play in a BCS game. Furthermore, four
    teams--Utah, Boise State, Texas Christian, and Brigham Young--
    finished the season ranked higher in the BCS' own standings
    than at least one of the teams that received an automatic bid.
        Clearly, the BCS bowl games exist in a category all their
    own, and the architects of the BCS system appear to have
    intentionally excluded teams from non-privileged conferences,
    not on the basis of competition, but due to prearranged
    agreements.
        The Section 2 problems continue with regard to the National
    Championship game, as the current system ensures that only
    teams from the BCS' preferred conferences can qualify to play
    in the National Championship game. This is evidenced by the
    fact that although several teams from non-preferred conferences
    have gone undefeated over the years, none of them has even a
    remote chance of qualifying for the National Championship game.
        Indeed, last season alone, two teams--Utah and Boise
    State--finished the regular season with better records than any
    team from any of the preferred conferences. Yet neither was
    even a consideration when it came to crowning a national
    champion. The University of Utah finished the season by routing
    a team that had been ranked number one for much of the season.
    It is hard to imagine what more Utah could have done with its
    season in search of a National Championship. Yet under the BCS
    system, they were eliminated from such consideration before the
    season even started.
        Section 2 was specifically intended to prevent such
    exclusionary tactics on the part of monopolists. The problems
    with the BCS extend well beyond the football field and address
    more significant issues than qualifying for either a National
    Championship or participation in a BCS game.
        Ultimately, when we are talking about college football and
    the BCS, we are talking about institutions of higher learning.
    Each of these schools faces unique challenges when it comes to
    funding athletics and academic initiatives. The purposeful
    disparities in funding created by the BCS ensure that schools
    in privileged conferences, even those whose football teams are
    not all that competitive, enjoy advantages in offering
    scholarships and providing staff and facilities for their
    athletic programs.
        The increased visibility that a company's automatic
    qualification into a BCS game guarantees that the teams from
    outside conferences face disadvantages with regard to
    recruiting players and hiring top coaches. This would be
    tolerable if the inequities were the result of inferior
    performance on the part of the teams on the outside, but I do
    not believe that the evidence really supports such a claim.
        In addition to facing unique financial challenges, colleges
    and universities are charged with a unique mission: educating
    our young people and preparing them for their careers. In
    addition, they are in large part subsidized by the taxpayers,
    either through the receipt of funds or by enjoying tax-exempt
    status. That being the case, I believe they should be held to
    the highest legal and ethical standards.
        For these reasons and others, the BCS has garnered the
    attention of Congress and the President, not to mention the
    dissatisfaction of fans throughout the country. Yet after the
    2008 season, when the flaws in the BCS system were made all the
    more obvious than ever, the architects have sought to extend
    the status quo for the foreseeable future.
        Of course, the new agreement is even more lucrative and
    quite likely promises to expand the divisions between the
    privileged and the non-privileged programs. It is my
    understanding that even as Congress has focused its attention
    on the system, the BCS appears to be attempting to strong-arm
    those in weaker bargaining positions into signing a new
    agreement by July 9, many months before the current contract
    expires.
        Given the widespread public criticism of the current system
    and its obvious flaws with regard to competition, I had hoped
    that going forward would see a greater willingness to adapt on
    the part of the BCS. However, that does not appear to be the
    case.
        Now, I am certain that some members of today's panel
    disagree with my conclusions. I welcome their testimonies and
    will give them ample opportunity to make their case to change
    not only my mind but the minds of, I think, millions of others
    as well. I am hopeful that rather than being just another
    chapter in the endless BCS debate, this hearing will shed some
    real light on the legal issues surrounding these matters. And
    toward that end, I want to thank all members of the panel for
    their attendance here today, and I particularly want to thank
    the distinguished Chairman for allowing me to conduct this
    hearing.
        Now I would like to just introduce our panel of
    distinguished witnesses.
        Our first witness to testify today is President Michael
    Young. President Young is the president of the University of
    Utah. He is the former Dean and Law Professor of the George
    Washington University Law School. In addition, President Young
    was a professor at Columbia Law School. He also is a graduate
    of Harvard Law School, where he was note editor of the Law
    Review.
        Next we will hear from Mr. Barry Brett. Mr. Brett is a
    partner of Troutman Sanders in New York. He is also chairman of
    the American Bar Association's Antitrust Section Committee on
    Sports, Labor, and Entertainment. Mr. Brett represents the
    Mountain West Conference here today, as I understand it.
        Also testifying today is Harvey Perlman, the Chancellor of
    the University of Nebraska at Lincoln. Chancellor Perlman is
    the former Dean of the University of Nebraska College of Law.
    Chancellor Perlman currently sits on the BCS Oversight
    Committee, and we are grateful to have all of you here today.
        Our next witness will be Mr. William Monts. Mr. Monts is a
    partner at Hogan and Hartson in Washington, D.C. He has 20
    years of experience in litigating antitrust cases, and for 18
    of those years, Mr. Monts has represented various interests in
    post-season college football.
        I want to thank you all for appearing today. We want to
    welcome you to the Subcommittee's hearing, and after each of
    you gives your testimony, we will proceed to questions. I do
    not know who is going to show up here today, but if they do
    not, I will have plenty of questions.
        However, before I swear in today's witnesses, I would like
    to thank Mr. Paul Michael Kaplan, a partner at Arent Fox, for
    his assistance to the Subcommittee in preparing for today's
    hearing. I would also note that the Subcommittee was looking
    forward to hearing the testimony of Bob Kustra, the president
    of Boise State. Unfortunately, due to a family emergency, he is
    unable to be with us today. Accordingly, I ask for unanimous
    consent that President Kustra's and Mr. Kaplan's testimony to
    the Subcommittee be included in the record and, without
    objection, so ordered.
        Now, if I could ask all of the witnesses to rise and raise
    their right hand as I administer the oath, I would appreciate
    it.
        Do you affirm that the testimony you are about to give
    before the Committee will be the truth, the whole truth, and
    nothing but the truth, so help you God?
        Mr. Young. I do.
        Mr. Brett. I do.
        Mr. Perlman. I do.
        Mr. Monts. I do.
        Senator Hatch. Thank you.
        So, President Young, we will proceed with you first, and we
    will just go right across the table. We are very grateful to
    all of you for being here, and we look forward to taking this
    testimony, and hopefully it will answer some of the questions
    that many of us have.
        President Young.

    STATEMENT OF MICHAEL YOUNG, PRESIDENT, UNIVERSITY OF UTAH, SALT
                            LAKE CITY, UTAH

        Mr. Young. Senator Hatch, thank you very much for holding
    this very important hearing.
        I would not be here today if all universities had a
    realistic opportunity to compete for the National Championship
    and if the BCS revenues were equitably distributed among the
    institutions. If those were the facts and the only question was
    whether the correct teams were chosen to play in the
    championship each year, then the commissioners of the 11
    Football Bowl Subdivision universities and conferences could
    adequately address any necessary tweaking to the BCS. But,
    unfortunately, that is not the case.
        I am here this afternoon to talk to you about the inherent
    unfairness of the BCS. The BCS embraces favoritism rather than
    fairness in three critical respects, among others.
        First, the champions of six of the 11 conferences that play
    major college football called the Automatic Qualifying
    Conferences--or, as you have so eloquently put it, ``the
    privileged conferences''--automatically receive berths in the
    five most prestigious and lucrative bowls each year, known as
    the BCS bowls. The champions of the other five conferences,
    called the non-AQ Conferences, must earn a place in the BCS
    bowls, and practically speaking, at most, as you have pointed
    out, only one non-AQ team will receive such a berth. The AQ
    Conferences, along with Notre Dame, effectively guarantee
    themselves nine of the ten berths in the top bowls every year,
    regardless of their performance on the field.
        Let me explain what I mean by that. Performance should be
    the measure by which all conferences, AQ and non-AQ alike,
    receive BCS bowl berths. If performance were the governing
    criteria, the Mountain West would be entitled to AQ Conference
    status. Over the past 2 years, the Mountain West has had a
    better record in interconference games against the AQ
    Conferences than any of the other ten conferences. Over the
    past 4 years, the Mountain West has been extremely competitive
    against the AQ Conferences, as I have indicated in my written
    testimony. Off-the-field agreements should not, as the BCS
    mandates, trump on-the-field performance.
        Second, the BCS has provided major college football with a
    dubious distinction: it is the only sport that effectively
    eliminates half of its teams from the championship before the
    season even begins. The BCS system effectively tells the
    world--and, more importantly, the pollsters--that non-AQ
    Conference teams are undeserving of an automatic bid to a BCS
    bowl.
        Coaches and administrators from AQ Conferences perpetuate
    the stereotype by frequently denigrating the non-AQ
    Conferences, stating, for example, that they are not real
    conferences. As a consequence, non-AQ teams are never
    appropriately ranked in the pollster popularity contests.
        Cementing the fate of non-AQ Conference universities is the
    fact that just two teams are selected at the close of the
    regular season to compete in the championship game. This fact,
    combined with second-class status of the non-AQ Conferences
    mandated by the BCS, leads to the inevitable exclusion of non-
    AQ Conference teams from competing for the National
    Championship.
        In 2008, as you pointed out, Utah was denied an opportunity
    to compete for the National Championship. When your conference
    has the top interconference record against AQ Conference teams,
    and your university from that same conference has the top
    record in the country, you should have a chance to compete for
    the title. Championships should be decided by competition, not
    conspiracy.
        Third, the revenue inequities under the BCS system are
    stark. In 2008, Mountain West Champion Utah was ranked far
    ahead of the ACC and Big East Champions. Mountain West went 6-1
    in regular season play against the PAC 10. And all four of
    these conferences sent one team to a BCS bowl game. Yet the
    three AQ conferences each received $18.6 million from the BCS,
    whereas the Mountain West received only $9.8 million.
        The story over time is even more telling. During the past 4
    years, the Mountain West has competed very well against all six
    AQ Conferences, yet over that same period of time, Mountain
    West has received an average of $18 million, or 75 percent less
    than the six AQ Conferences. And over the past four seasons,
    the AQ Conferences have received $492 million, while the non-AQ
    Conferences have received less than $62 million.
        Simply stated, the competitive and revenue inequities of
    the BCS system condemns the non-AQ Conferences to a permanent
    underclass. Non-AQ Conferences struggle to build new
    facilities, pay competitive coach salaries, finance effective
    recruiting, and fund student scholarships. These economic
    inequities harm football programs, but also harm other sports
    that rely heavily upon the revenue from football.
        Student athletes can see these economic disparities between
    the programs, and they hear the message loud and clear from the
    AQ Conference coaches, that playing for a non-AQ team means no
    chance for a National Championship experience.
        Finally, and in my judgment, most importantly, as educators
    we work hard to teach the right values in the classroom. We
    want our students to take away from their college experience
    the belief that hard work and skill are the necessary tools to
    achieve. We want our students to strive to make all playing
    fields in life level and to give everyone the same
    opportunities to succeed.
        It is tough, however, to make these values stick when we
    teach a different message on the playing field. A BCS system
    that relegates non-AQ Conferences to permanent second-class
    status, that denies nearly half the schools of any opportunity
    to compete for the National Championship, and rewards nearly 87
    percent of the revenues to the AQ Conferences, regardless of
    their on-field performance, sends the wrong message to our
    students.
        The BCS changes the old saying, ``If you can't beat them,
    join them,'' to this: ``If you can't beat them, eliminate
    them.'' This is a bad message and actions, after all, speak far
    louder than words.
        A variety of justifications for this system have been
    offered in the past by representatives of the BCS. As outlined
    in my written submission, in my judgment, none of these even
    pass the straight-faced argument test. And, in fact, some even
    cut entirely in the opposite direction. But the essential point
    is simple and straightforward. This is a system designed to
    channel money to certain universities based on an agreement,
    not on achievement. Championships and opportunities are made
    available by conspiracy, not by competition. It harms higher
    educations, our student athletes, and the American public.
        Thank you. I would be delighted to take questions.
        [The prepared statement of Mr. Young appears as a
    submission for the record.]
        Senator Hatch. Thank you, President Young.
        We will turn to Barry Brett now, a distinguished attorney.

    STATEMENT OF BARRY BRETT, ESQ., PARTNER, TROUTMAN SANDERS, NEW
                             YORK, NEW YORK

        Mr. Brett. Thank you, Mr. Chairman, and thank you for
    inviting us to speak today on this very important issue and for
    holding this hearing.
        I am the chair of the antitrust practice group of Troutman
    Sanders. I was chair of the Sports and Entertainment Committee
    of the American Bar Association Antitrust Section and of the
    New York State Bar Association Antitrust Section. I was on the
    governing committee of the ABA Forum of Sports and
    Entertainment. In short, I am an antitrust lawyer by trade and
    a sports junkie by choice.
        I am very gratified to see the Committee addressing the
    Bowl Championship Series, which controls major post-season
    college football bowl games, controls the fictional National
    Championship, and uses this control to exclude all but its
    founding members from fair access to this competition and the
    hundreds of millions of dollars involved. The system offends
    the most basic antitrust law principles of competition.
        There are 88 playoffs run by the NCAA covering college
    sports. All can accommodate the needs of the students and
    academia. In what was just historically called Division I
    college football, however, the NCAA does not act. Instead, it
    allows a self-designated cartel, created and controlled by six
    conferences, to set the rules for access to major post-season
    football games and its National Championship. It allows these
    conferences to control the enormous revenue they generate and
    to prevent the playoff desired by the public.
        It is estimated that a playoff system would produce twice
    the current revenues of the BCS system. In antitrust terms and
    in the jargon of my business, the BCS system ``limits output,
    limits consumer choice, and restrains competition in violation
    of the Sherman Act.''
        Our written submission details the history and workings of
    the BCS and sets forth many of the applicable legal precedents
    and principles. The BCS guarantees each of its six conferences
    a place in one of the major bowls and a large payday based on
    agreements rather than performance. In practice, the
    foreclosure has been almost complete.
        Teams from other conferences face great barriers to qualify
    for one of the major bowls, and they face what effectively have
    been insurmountable battles to qualifying for a chance at the
    fictional National Championship. The six conferences have
    reserved for themselves approximately 87 percent of the BCS
    revenues.
        There have been 90 major bowl appearances by the original
    conference teams and only four appearances by non-original
    conference teams during the history of the BCS. Every
    contestant in the National Championship game has been from one
    of the original conferences. We have set forth in our printed
    materials data and studies showing this inequity and the manner
    in which it is not justified by performance.
        By any objective criteria, the excluded teams are as good
    as many of those included. Yes, the anticompetitive effects and
    economic disparities are dramatic.
        Some months ago, the Mountain West Conference submitted to
    the BCS a detailed proposal which provided for a playoff system
    that would finally yield a national champion based on
    competition and equal opportunity rather than reliance on
    poorly drawn, rarely understood, and deeply flawed formulae.
    The proposal would preserve the historic bowl games, add
    exciting games, and generate much more income for all
    concerned.
        On June 15th, USA Today reported that the proposal was not
    even put on the BCS agenda, and it has been summarily rejected.
        When rebuffed, the Mountain West Conference asked my
    partner Roy Bell and me to analyze and discuss with them
    whether the BCS structure violates Federal antitrust law. We
    have prepared a report, which has not been adopted as a
    position of the Mountain West Conference, but has been codified
    into a detailed legal memorandum to this Committee.
        In the words of the Supreme Court, ``The Sherman Act was
    designed to be a comprehensive charter of economic liberty,
    aimed at preserving free and unfettered competition as the rule
    of trade.''
        The BCS offends everything the Sherman Act is designed to
    accomplish. Instead of competition on the merits, the BCS is a
    commercial enterprise which flouts the Sherman Act and
    sacrifices on-field competition in order to protect an enormous
    revenue stream. The BCS has nothing to do with amateurism or
    education, but is a commercial venture based on barriers to
    competition. The BCS has negotiated a new TV contract for
    almost $500 million. Each of the six controlling conferences is
    guaranteed at least $18 million a year.
        From the point of view of fans and players, the goals and
    barriers of sports are corrupted by commercial goals.
    Competitive success does not yield access to the National
    Championship.
        Twenty-five years ago, the Supreme Court established that
    NCAA rules limiting the televising of games was a violation of
    the Sherman Act. The NCAA fought vigorously to protect its
    restrictions, just as the BCS now defends its restrictions. The
    finding of a violation of Section 1 of the Sherman Act in that
    case was one of the great foundations for college football as
    we know it today and its enormous popularity.
        Every element of a violation of the Sherman Act is present
    in the BCS. The agreement required for a Section 1 violation is
    clear. The anticompetitive effects are manifest and shown in
    study after study. Price competition among the bowls is
    eliminated by agreement. The claimed benefits of the
    arrangement are illusory and easily achieved by less
    anticompetitive alternatives.
        Similarly, all of the elements of a Sherman Act Section 2
    violation are apparent. The BCS has secured, maintained, and
    exercised the power to exclude competition and control price,
    which are the hallmarks of the offense of monopolization. It
    has reserved for itself the spots in the major bowl games
    without regard to competitive success. The BCS will not even
    consider a playoff, and it reflects all of the evils of
    monopoly power that the Sherman Act prohibits.
        The competing teams, the schools, the student athletes, and
    the public want a playoff and the competition on the merits,
    which the Sherman Act requires. A group of competing businesses
    would face criminal antitrust scrutiny if they tried a stunt
    like this. Antitrust principles require that it end and that we
    bring back the principles of equal opportunity, competitive
    reward, and fair play on and off the field.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Brett appears as a
    submission for the record.]
        Senator Hatch. Well, thank you. We appreciate your
    testimony.
        Chancellor Perlman, we will take your testimony now.

        STATEMENT OF HARVEY PERLMAN, CHANCELLOR, UNIVERSITY OF
                  NEBRASKA-LINCOLN, LINCOLN, NEBRASKA

        Mr. Perlman. Senator Hatch, thank you.
        I acknowledge that there are football fans and sports
    writers who believe the ideal system to crown a national
    champion is an NFL-style playoff. Unfortunately, those of us
    responsible for our universities' involvement in post-season
    football must try to craft a system that reflects the
    restraints of the real world.
        In my written statement, I have discussed those realities
    at length, and I will only highlight three of them here.
        First, any system of play must recognize that athletes who
    play football are also students. For the vast majority of them
    their success in the classroom will have far more to do with
    their success as adult citizens than their performance on the
    football field. As presidents and chancellors, this reality
    must be our highest priority.
        Second, not every school in Division I is equal on the
    football field or in any other field of endeavor. Each
    university has pillars of strength that were created by
    conscious investments, hiring of great leaders, natural
    advantages, significant philanthropic donations, dumb luck, or
    a combination of these factors.
        All students, like student athletes, can make individual
    choices among the strengths of the various institutions in
    which they could enroll, and these choices may enhance or
    diminish their future opportunities. This is a reality that
    cannot be ignored, nor is it one that can be easily changed.
        Third, any system designed to determine a national champion
    in intercollegiate football can only come about through the
    agreement of those universities who consistently field highly
    ranked teams. A system that did not involve schools from the
    six automatic qualifying conferences and Notre Dame could not
    claim to be one that is likely to produce a national champion.
    This is not true of other conferences.
        To secure the participation of these essential conferences,
    the system must provide revenue in excess of their other
    opportunities, must be consistent with their academic values,
    must take into account the impact on the fans who provide their
    schools with support, must preserve the excitement of the
    regular season, and must honor the long-standing relationships
    that they have had with the bowls and the communities those
    bowls support.
        The current BCS is able to satisfy those requirements; we
    have yet to see an alternative arrangement that does the same.
    This has not worked out to the disadvantage of the five
    conferences that do not automatically qualify for a BCS bowl.
    Before the BCS, none of the teams in these conferences had
    agreements with any of these major bowls, and these teams
    seldom played in them. Since the BCS, they have had more access
    to these bowls.
        Because of the BCS, these conferences also receive
    considerably more revenue than they did under the old system.
    In fact, we know informally from media experts that the
    payments we make to these conferences is, in fact, a subsidy of
    their athletic programs because the access we have provided
    does not increase the market value of the BCS product.
        The bottom line is that with the BCS these conferences have
    increased their access to and exposure in national television
    markets, and they have substantially enhanced the revenue
    available to them from post-season football. There might be
    many concerns expressed about the BCS, but it is hard for me to
    see how these conferences can claim to be disadvantaged.
        Finally, there is an assumption that the uneven
    distribution of revenues generated by the BCS is responsible
    for disparity in athletic success. When considered from an
    institutional perspective, the revenue a university like mine
    receives from the BCS is a very small proportion of our total
    revenue.
        My university's athletic department budget for next year
    will be approximately $75 million. If the Big 12 Conference
    places one team in a BCS bowl, the University of Nebraska can
    expect a distribution of approximately $1.5 million. This is 2
    percent of our budget. To put this in perspective, if we added
    an additional home football game, we could more than double
    that revenue.
        To be sure, some schools are thought to have an advantage
    because of the schedule they play, their history of success,
    the size of their budgets, and the support they receive from
    fans and donors. But at the beginning of the season, every
    Division I football team has an equal chance to become national
    champion if they rank first or second in the country.
        You would not predict that the University of Nebraska would
    have enjoyed the success we have had on the football field. We
    come from one of the smallest population States in the country
    and must recruit athletes nationwide. We do not have mountains
    or seashores or large cities or a moderate climate capable of
    attracting student athletes, and we labored long in the
    obscurity of losing seasons. But we sustained a loyal fan base,
    we hired and retained gifted coaches who were skilled at
    recruiting student athletes getting them to play at the height
    or even sometimes beyond their athletic abilities.
        We built this success, as we have built our recent academic
    success, by working harder and being more creative than the
    competition. We believe these options remain open for all
    schools in Division I. We do not believe that the BCS has made
    this process more difficult. In fact, by granting greater
    access and exposure to these schools than ever before and
    providing them with more revenue than ever before, we have
    created the opportunities for them to be successful.
        Thank you.
        [The prepared statement of Mr. Perlman appears as a
    submission for the record.]
        Senator Hatch. Well, thank you, Chancellor Perlman.
        Let's go to you, Mr. Monts, now and take your testimony.

       STATEMENT OF WILLIAM MONTS III, ESQ., PARTNER, HOGAN AND
                        HARTSON, WASHINGTON D.C.

        Mr. Monts. Thank you, Senator Hatch. I am William Monts. I
    am a partner in the law firm of Hogan and Hartson here in
    Washington, D.C. and have practiced for nearly 20 years in the
    firm's antitrust, competition, and consumer protection practice
    group.
        For roughly 18 years, I have had the privilege of working
    on various matters related to post-season college football--
    first representing certain bowl games in connection with the
    Bowl Coalition, and in the past 14 years, representing certain
    conferences in connection with the Bowl Alliance and now the
    Bowl Championship Series.
        I have thought about these issues a great deal over the
    past 18 years, not merely as a lawyer, but as an avid fan of
    the game. I have spent a great deal of time studying its
    history and the athletic, economic, and legal developments that
    have shaped it.
        I am going to limit my remarks today to an analysis under
    Section 1 of the Sherman Act and will assume, for the sake of
    argument, that a number of threshold issues that I covered in
    my written statement could be proved by a complainant against
    the BCS.
        I do that because, one, if the BCS passes muster under
    Section 1, I believe it also passes muster quite easily under
    Section 2; and I want to focus on those issues that I
    understand are animating the hearing that brings us here today.
        The BCS would be analyzed as a joint venture under Section
    1 of the Sherman Act and would be reviewed under the so-called
    rule of reason under which procompetitive benefits of an
    arrangement are weighed against the anticompetitive effects.
    Only if the anticompetitive effects outweigh the procompetitive
    benefits is the agreement unlawful. So let me turn to that
    analysis. I believe there are at least four procompetitive
    effects that I would like to highlight here today.
        First, the BCS creates a guaranteed national championship
    match-up between the top two ranked teams each year. No
    conference or institution can produce that product on its own.
    It can only result from an agreement among the conferences and
    the University of Notre Dame. Without the agreement, there is
    no such game.
        Second, the BCS creates attractive match-ups between
    conference champions and highly ranked runner-up teams in the
    other BCS bowls based on the a full-season's results. The old
    bowl system often resulted in match-ups that were created after
    seven or eight games, as a bowl filled its empty slots by
    effectively committing to take a particular team. If that team
    later went on a losing streak at the end of the season,
    nonetheless, the bowl was often left with no other choice
    because other bowls had paired up with other attractive teams.
        Third, the BCS preserves and strengthens the bowl system
    overall, thus creating the maximum number of post-season
    opportunities for student athletes, coaches, and fans and the
    maximum number of post-season games. It is important to note
    that there are only five bowl games that are a part of the BCS
    and that there are 29 other bowl games that are independent of
    the BCS and make their own decisions about teams that they
    choose and conferences with which they will have affiliation
    arrangements.
        Fourth, and finally, the BCS and the bowl system generally
    enhances the college football regular season by making every
    game meaningful. Today college football is widely regarded as
    having the best regular season in all of American sport. That I
    suggest to you, is largely the result of the BCS and the bowl
    system.
        Now, against these substantial procompetitive benefits
    stand what I understand to be two alleged anticompetitive
    effects. The first is that the BCS denies conferences access to
    the BCS bowls and the National Championship; and, secondly,
    that the BCS revenue is not split equally. Neither is an
    anticompetitive effect.
        The purpose of the antitrust laws is to protect not
    producers of college football but consumers. And in this case
    the immediate consumers are the bowl organizations and
    television networks; the ultimate consumers are the fans. If
    the BCS were to disappear tomorrow, nothing would arise to take
    its place. We would return to the old bowl system in which each
    conference competed with one another for the most attractive
    bowl slots. When that is understood, it is easy to see why the
    exclusion argument fails.
        BCS bowls could today, if they wished, always demand to
    have a champion from one of the five conferences without an
    annual automatic berth. Similarly, they could take one with an
    at-large pick. They have chosen not to do so. The BCS,
    nonetheless, guarantees those conferences access to those bowl
    games under certain circumstances--guarantees they would not
    have otherwise.
        In short, it enhances their bowl opportunities over what
    would be available to it in the absence of the BCS and,
    therefore, there is no denial of access. As for the
    championship game, if there is no BCS, there is no championship
    game and, thus, there is no denial of access there either.
        On the revenue distribution point, the BCS provides the
    five conferences now with revenues they would not be able to
    obtain on their own. Thus, far from being anticompetitive, it
    subsidizes those leagues.
        In any event, revenue distribution within a joint venture
    is not the concern of antitrust law. The issue is market
    output, and here there is no negative effect on output by the
    BCS. Either the venture is lawful and does not restrict output,
    in which case how it divides up revenues among its 11 members,
    12 members in this case, is of no antitrust concern; or the
    venture is not lawful, in which case it is enjoined and there
    will not be any revenues at all to distribute.
        At bottom then, the BCS has several procompetitive benefits
    and its alleged anticompetitive effects are non-existent.
        Let me make one final point because I think it further
    demonstrates why an antitrust claim is of no benefit to the
    five conferences without annual automatic berths. Even if one
    were to assume a Sherman Act violation, the remedy for the
    prevailing party is an injunction against the arrangement. The
    BCS will go away, but no court is going to write a playoff
    system or some alternative structure, establish selection
    procedures, negotiate relevant contracts, allocate costs and
    revenues that might be earned from the arrangement; that is
    just not what courts do.
        Having declared one form of cooperation--and a very mild
    form at that--unlawful, no court is going to set about crafting
    from whole cloth a more restrictive form of cooperation that
    would be required to have a playoff. The Sherman Act does not
    give it the authority to do so, and the Supreme Court in the
    last 5 years has cautioned against these sorts of judicial
    misadventures.
        Instead, we would be back to the old bowl system--but with
    one important caveat. With the judgment on the record that the
    BCS is unlawful, I suspect that conferences would be far less
    willing to entertain the concept of a playoff which would rest
    upon an agreement among the exact same parties, with the exact
    same market power, that would be far more restrictive than BCS
    and likely to have substantially adverse effects on the bowls.
        The peculiar irony of an antitrust claim is that it is
    likely to sound the death knell of the alleged playoff that the
    critics have insisted and claimed they want. In that sense, it
    would be a pyrrhic victory and would leave those conferences
    from whom the critics profess concern in a much worse position.
        Again, Senator, it is an honor to appear before you today,
    and I look forward to answering any questions you may have.
        [The prepared statement of Mr. Monts appears as a
    submission for the record.]
        Senator Hatch. Thank you, Mr. Monts.
        Let us start with you, President Young. It is my
    understanding that privileged--I call them ``privileged''--
    conferences can rely upon receiving a substantial yearly sum of
    BCS revenues. Under the BCS system, such revenues are
    guaranteed to the teams in the six privileged conferences
    regardless of how they perform on the field; and proponents of
    the BCS have implied that the revenue distribution is both fair
    and equal and that every conference that receives one bid in a
    BCS game in a year receives the same amount.
        Now, I personally think the numbers tell a different story.
    Is that true? And what are the practical effects of the current
    distribution of revenue?
        Mr. Young. Senator, let me answer that question in two
    parts, if I may. I am going start with the paragraph from an
    op-ed piece that President Robert Kustra from Boise State
    University wrote, which I think illuminates the fallacy in the
    first part of that argument.
        He says, ``To take a page from recent history, in 2004
    Boise State went undefeated and finished the season number 9 in
    the BCS, yet was excluded from a BCS bowl while number 13
    Michigan and number 21 Pittsburgh qualified.''
        ``In 2006, Boise State went undefeated and finished the
    season ranked number 8, was invited to play, and defeated
    Oklahoma in one of the greatest games ever played.''
        ``In 2008, Boise State went undefeated again and finished
    the season number 9 in the BCS, yet was passed over for a BCS
    bowl, while number 10 Ohio Sate, number 12 Cincinnati, and
    number 19 Virginia Tech were all chosen for BCS bowls.''
        And I could go on with a series of other examples even from
    our own conference. This year, three teams were ranked more
    highly in our conference alone than teams that were chosen to
    play in a BCS bowl. So it seems to me that it is challenging to
    make that argument.
        The second thing I would say with respect to revenue
    distribution, it is true if a non-automatic qualifying
    conference team does exceptionally well, much better,
    necessarily better, than a number of the automatic qualifying
    teams, and manages to work its way in, despite all these
    handicaps, it does, in fact, get less because the agreement
    within the five non-automatically qualifying is that that
    revenue will be divided up. And, frankly, we oppose that. But
    the system set up under this agreement forced us into an
    arrangement where we have to share those revenues with these
    other schools, so we get approximately half of what a BCS
    conference automatic-qualifying team would get playing in the
    same bowl game.
        Senator Hatch. Chancellor Perlman, you have argued that the
    BCS revenue distribution is not only fair but better that it
    would be under any feasible alternative or system. However,
    last year both the PAC 10 and the Mountain West had exactly one
    team qualify for a BCS game. Yet the PAC 10 received nearly
    twice as much revenue as the Mountain West. As a result, the
    team that finished at the bottom of the PAC 10, which did not
    win a single game last year, was guaranteed before the season
    even started to receive more BCS revenues than the University
    of Utah, to pick one school, which finished the season as the
    only undefeated team in college football.
        Now, tell me how that result can be justified.
        Mr. Perlman. Senator, the bowls and the conferences have
    had relationships, and you have to think of this in the context
    of multiyear relationships. The alignment of the Fiesta Bowl
    with the Big 12 is based on the proposition that every year the
    Big 12 will produce at least one or two teams that are
    significantly highly ranked. The years when Oklahoma and
    Nebraska were not playing as well as they had been, we still
    produced a Texas or a Texas A&M or a Missouri.
        These relationships reflect not only the strength of a team
    in a conference, but the depth of strength in a conference. And
    those relationships were long standing before the BCS, and it
    was based on that that these revenue distributions are made.
        The fact is we know that from our conversations,
    negotiations with the media and others, that adding the other
    five conferences did not increase the revenue available through
    the BCS. So the revenue is distributed based on the
    contribution made to the value of the product.
        Senator Hatch. OK. Well, let me go back to President Young.
    The BCS proponents have claimed that the current BCS system,
    including the distribution of BCS revenues and the system for
    awarding BCS bids, is required by the marketplace.
        Now, is that true?
        Mr. Young. Well, again, I think there is little evidence
    that that is actually true, if you look at the data. If, for
    example, you look at the opportunity for bowls for the
    University of Utah, we were selected over teams--Cincinnati and
    Virginia Teach, for example--and that Sugar Bowl, in which we
    played, had a much, much higher viewership than the bowl in
    which Cincinnati and Virginia Tech played. It just is not clear
    to me at all where one can assert with confidence that the
    marketplace drives this in that particular way.
        I think that if you actually look as well at the period
    from 1982 to 1991, you see seven of the ten teams that actually
    were ranked as national champions were not then in automatic-
    qualifying conferences and were put in, in part, as
    Commissioner Swafford said, in order to bring in the teams that
    had been playing for the National Championship and designed to
    solidify and create that certainty.
        And so one could argue that these teams have these
    relationships and, therefore, the finances follow. Or,
    conversely, the bringing of the teams into it has generated the
    money itself, and the current practice that excludes 51 of the
    teams in college football from having a realistic opportunity
    to prove themselves on the field in that way, it seems to me to
    belies the notion that this is market-driven.
        Senator Hatch. Chancellor Perlman--and then I am going to
    turn to Senator Schumer--you have argued that the marketplace
    that the six preferred conferences receive automatic bids due
    to their prominence in college football and to preexisting bowl
    tie-ins.
        Now, does that apply to every one of the privileged
    conferences? For example, let me give you an example. The Big
    East has no bowl agreement and in recent years have been
    outperformed on the field by outside teams in conferences. Now,
    what is the market justification for including the Big East and
    excluding the Mountain West?
        In addition, last year, two non-privileged teams qualified
    for BCS games, but only one was invited due to the BCS rules.
    What is the market justification for excluding eligible teams
    even when they could have been invited without affecting the
    automatic bids of any privileged conferences?
        Mr. Perlman. Senator, when the BCS was formed, the Big East
    conference did, in fact, produce a number of national champions
    and teams that played with national champions. When we revised
    the BCS system in 2003 and 2004, we created a pathway for
    conferences who were not automatic qualifiers to become
    automatic qualifier based on the strength and depth of the
    conference on the field.
        The Big East went through that process and was successful.
    That process is open to the other five conferences as well. So
    we did try and create a mechanism whereby conferences, through
    the strength and depth of their success on the field could
    become automatic qualifiers in the Bowl Championship Series.
        Senator Hatch. Well, tell us about the specifics of that
    criterion because that has not been made public to my
    knowledge.
        Mr. Perlman. Well, Senator, it was part of the agreement of
    the group of five that all of them agreed to when we revised
    the system in 2003-04. I am not sure that I can give you the
    details without referring back to the contract, and I do not
    know if Mr. Monts remembers them as well. But there is a
    process, and it is one that has objective criteria for meeting
    that process.
        Mr. Monts. Senator, may I add to that?
        Senator Hatch. Certainly.
        Mr. Monts. There is a process. It relates to three
    different criteria: first is the ranking of the highest ranked
    team in the conference; second is the number of teams ranked in
    the top 25 of the final BCS standings; and then the third is
    the strength of the conference measured by the ratings of all
    of its teams from top to bottom.
        The standards work over a 4-year period. The 4-year period
    began in 2004 and went through 2007. There was a new period
    that began last year, will run through the 2011 regular season.
    And so based on those standards, we are in the new period, and
    certainly any conference that triggers them that does not now
    have an automatic berth will earn one.
        Senator Hatch. Have those criteria been made public, the
    four you mentioned here?
        Mr. Monts. I do not know if they have been made public,
    Senator. They are part and parcel of the BCS agreement.
        Senator Hatch. OK. Let me go back to you, Chancellor
    Perlman. One of the arguments made in defense of the BCS
    specifically with regard to the National Championship game is
    that it is objectively open to every team regardless of their
    conference affiliation.
        Now, put simply, if the team is ranked No. 1 or two, it
    will not play in the National Championship no matter what
    conference it hails from. However, as a practical matter, while
    this standard is theoretically objective, it eliminates most
    teams from consideration before the season even begins. Isn't
    that correct? Or, in your opinion, does every team begin the
    season with the possibility of playing in the National
    Championship game?
        Mr. Perlman. Senator, I can say certainly that the system
    allows every team an equal right to be No. 1 or No. 2 if they
    are successful on the field.
        I am not so naive as to think that, as a practical matter,
    some schools do not have, because of tradition, because of
    reputation, a better chance at it. It is the same as when
    Nebraska walks into NIH and seeks a Federal grant and we are
    competing against Harvard. Theoretically, we have the same
    opportunity. Do we as a realistic matter? I am not sure.
        But I do believe that--I mean, the problem is, of course,
    that we do not all play each other, and there is no conceivable
    way that we could play each other. And so a team that may be
    undefeated may not have played the same strength of schedule,
    may not have interacted with a sufficient number of teams to
    solicit a ranking of one or two from those people that look at
    the system and try and pick the No. 1 or No. 2 teams.
        Senator Hatch. President Young, do you care to comment
    about that?
        Mr. Young. Well, I think the key point--and I wanted to
    emphasize and appreciate Chancellor Perlman's emphasis of the
    key point--is that the system is entirely self-referential and
    so that you have at least as one of the major data----
        Senator Hatch. Self what, now?
        Mr. Young. Self-referential. That is to say, it starts with
    a series of rankings, rankings based on a great deal of polling
    data--much of it by people who confessed this year that they
    have never seen a single Mountain West team play this year--and
    create a ranking system, and from that ranking system, then,
    however you perform on the field, whatever the strength of your
    schedule, climbing up that ranking becomes, at least to point
    one or two, virtually impossible. Coupled with the dialogic way
    of discussing BCS versus non-BCS, it makes it very difficult
    for any team in a process that is based in some large degree on
    popularity polling and on historic patterns rather than actual
    on-field performance to be ranked one or two. It is simply not
    realistic.
        Senator Hatch. Well, do you think that a team from an
    outside, non-privileged conference has a realistic chance to
    qualify for a National Championship game?
        Mr. Young. Well, Senator Hatch, the University of Utah
    comes from the conference that this year had the best
    interconference record. Against the PAC 10 we were 6-1, and we
    were undefeated and unable to climb that ranking.
        I do not know what more we could do. We have worked hard;
    we have hired gifted coaches; we have invested heavily in our
    program. We have worked diligently by dint of tremendous sweat
    and labor and after a year like that could not rise.
        Senator Hatch. Well, let me just rephrase it in another way
    for both you and Chancellor Perlman. Let us take last year's
    Utah team, for example. What more could they have done to play
    their way into a National Championship game? You know, if the
    BCS system ensures that most teams will not even have an
    outside chance of playing for the National Championship, isn't
    it fair to say that it is exclusionary?
        Mr. Young. Well, if we had been part of an automatic-
    qualifying conference, I suspect we would have had an
    opportunity to play for a championship.
        Senator Hatch. I see.
        Chancellor.
        Mr. Perlman. Senator, it is hard to respond to this without
    appearing to be disrespectful of Utah, which I am not.
        Senator Hatch. You do not want to be in this room.
        [Laughter.]
        Mr. Perlman. I know. I know.
        Senator Hatch. I happen to love the University of Nebraska,
    too. We have watched it for years, and your former coach was a
    good Member of Congress, and he is back with you, as I
    understand it.
        Mr. Perlman. He is.
        Senator Hatch. Well, that is going to do a lot of good, I
    think.
        Mr. Perlman. It will.
        Senator Hatch. And you have been very kind to come here and
    give us your viewpoint.
        Mr. Perlman. Well, I just want to say--I mean, there is
    realistically something that Utah could do. They could have
    played the schedule Nebraska played last year, where we played
    Oklahoma, Texas Tech, and Missouri--all of them ranked within
    the top five.
        Senator Hatch. Did they even have a chance to do that?
        Mr. Perlman. Well, they got a non-conference schedule that
    they could fill.
        Senator Hatch. Well, they played a lot of big-time teams
    last year.
        Mr. Perlman. I know, but the issue is----
        Senator Hatch. And they whipped one team that was No. 1 for
    most of the season.
        Mr. Perlman. And if they had have beaten Alabama before
    that bowl game instead of at that bowl game, they might have
    had a better shot at it.
        Senator Hatch. Well, I see. You are making my case for me.
        Mr. Perlman. You know, at some point--at some point--
    regardless of what system you talk about, somebody is going to
    have to pick the teams that play and the teams that are
    excluded.
        Senator Hatch. Is it fair to pick teams when you do not
    even go and see--when the criteria does not require you to even
    go and see a game? And let us use the Mountain West Conference
    as a perfect illustration.
        Mr. Perlman. I appreciate that it may seem unfair and it
    may, in fact, be unfair.
        Senator Hatch. Well, you know it is unfair.
        Mr. Perlman. But the fact is that somebody, no matter what
    system is proposed, is going to have to pick those teams that
    get to play and those teams that do not. And we have looked at
    every system possible. And you can look at the March Madness
    basketball, NCAA, where we have 64 teams, and we have a small
    committee locked in a room over that last weekend to pick the
    teams. And there is controversy every year about who is in and
    who is out. And it may be based on----
        Senator Hatch. It is based on a playoff game, you know.
        Mr. Perlman. Well, you do, but the issue is the same.
        College baseball this year picked the 64 teams to play in
    the regionals, and there is enormous controversy about how many
    of the Big 12 got in as opposed to how many the ACC or the SEC
    got in.
        There is no perfect system in this. And do some of us start
    out with a disadvantage? As I say, Nebraska has advantages and
    it has disadvantages in all of the areas that this university
    competes with other universities. That is the way the world is,
    I am afraid.
        Senator Hatch. President Young, do you have anything to say
    about that?
        Mr. Young. Well, I appreciate those comments very much, and
    I do appreciate the tremendous football team that Nebraska
    fields and wish that they were willing to play us. If you look
    at the ranked teams in the top 20 that we played----
        Senator Hatch. There you have a challenge. Now, let us get
    this----
        [Laughter.]
        Mr. Perlman. I will report to Athletic Director Osborne
    when I get back.
        Senator Hatch. You tell Osborne I want a University of Utah
    game.
        Mr. Perlman. All right.
        Mr. Young. I have heard that before. We really appreciate
    that and the tremendous programs that those are. But given the
    rankings of the teams that we played--again, it gets very hard
    to figure out what we do in a system that inherently stacks it
    against us, and that I think becomes the most fundamental
    concern.
        We are not concerned about external constraints placed on
    our system. I envy Nebraska's athletic budget, and they produce
    tremendous success because of it.
        My athletic budget is less, but we Westerners do more with
    less, and those kinds of constraints are ones we understand. It
    is the systemic constraints where the system starts
    systemically balanced and structured against the possibilities
    that are the problem--the man-made constraints, not those
    constraints that come because of weather and mountains and my
    capacity to fundraise or not fundraise.
        Senator Hatch. President Young, I wanted to ask you about
    the message the current BCS system sends to our young people.
    As you know, a group of colleges and universities are the
    primary movers behind the current system. It is these same
    institutions that we charge with the task of educating our
    young people and preparing them for the workforce.
        What impact, if any, does the BCS have on your efforts to
    teach students the proper values?
        Mr. Young. Senator, if I may take the liberty of reading
    two things that encapsulate it a bit?
        Senator Hatch. Sure.
        Mr. Young. One comes from my written testimony, and it just
    focuses on the fact that I believe, as I believe most
    Presidents believe, that we have a paramount responsibility to
    teach our students to be good citizens, to model fairness and
    equity and to lead by example. This is true in all aspects of
    university life, but particularly true for college football,
    which creates such great interest and enthusiasm and attention
    among our student body. College sports should promote fairness
    and equity and the fundamental American concept that anyone
    with the skills and drive to succeed can achieve the highest
    level of greatness.
        These are not the messages being sent by college football
    today. The BCS system, with its stranglehold on college
    football, sends the message that economic power rather than
    athletic ability is the key to success. As Commissioner
    Swafford said, ``Fairness depends on where you sit.'' Rather
    than promoting fairness and equity, the BCS system promotes the
    status quo--a system of schools who have and those who have
    not--and virtually assures that many highly successful athletic
    programs will be forever excluded from the highest levels of
    recognition and financial gain. And these are not values that
    we want our students to really model or emulate.
        I will read one last statement, if I may, which I think is
    beautifully written, that highlights our obligation, and it
    comes from David Frohnmayer, President of Oregon State
    University, who says, ``We can easily go too far--authority is
    seductive; we can reach a personal tipping point. . . .Some
    environments blind us to the human consequences of our
    actions--so we MUST be attuned to the consequences of our
    behavior. . . .This ethical life is hard work--``knowing right
    from wrong'' requires diligence, self-scrutiny and looking into
    a very well-lit and refractive mirror.'' And, of course,
    President Frohnmayer is the most recently retired Chair of the
    BCS.
        I agree wholeheartedly with his statement and what we ought
    to be teaching our students, and I do not believe that the BCS
    does that.
        Senator Hatch. Thank you.
        Chancellor Perlman, our State universities were created so
    each student would have an opportunity to attend college. Now,
    getting an education has increasingly become a prerequisite to
    achieve the American dream, which says if you work hard enough,
    you too can be a success and enjoy the fruits of your labor.
    But under the BCS system, it does not matter how good of a team
    you are. In the BCS system, there are significant and largely
    insurmountable obstacles at play in the so-called National
    Championship.
        Now, if your school does not belong to a privileged
    conference, that becomes even harder. Therefore, does not the
    BCS system violate the intellectual and ideological foundation
    which was the basis for the creation of State universities?
        Mr. Perlman. Well, Senator, of course, it is always--it
    depends on your perspectives on these matters. As I tried to
    indicate in my testimony, both written and oral, universities
    come with a set of endowments, some of them that they have
    earned, some of them that they acquired through luck. We are
    all different. It seems to me that one of the things that
    universities ought to teach students is the fact that, however
    the natural set of endowments are arrayed against you, hard
    work and creative activity can cause you to rise to the top.
        Bowl Championship Series gives every school an opportunity
    to play for the National Championship. It has increased the
    access of students and schools that did not have it before. It
    has increased the revenue of schools that have aspirations for
    playing at the highest level of college football. I do agree
    that the issue is one about students, and if you would permit
    me to also provide you a quote, it is from Gary Patterson,
    football coach at TSU, which I believe is a member of the
    Mountain West Conference:
        ``Obviously, a true playoff gives you a national champion.
    But my answer has always been it's for the kids. And bowl games
    are for the kids. If you're in the playoff, you spend all week
    at your place, and if you get beat, you're done. You never
    experience a new place; you never see new things. For me, the
    key to the bowl games is you get to experience another place;
    you get to learn about another program. A lot of our kids never
    get to go to the West Coast. In all this arguing, we tend to
    forget about the kids, about their academic load and everything
    else that comes with being a student-athlete. I have a tendency
    to stick with the bowls.''
        I think that is the attitude in most of the university
    presidents I come in contact with.
        Senator Hatch. Well, let me go back to President Young.
    Both Chancellor Perlman and Mr. Monts, in his testimony, in his
    written testimony, have stated that the BCS is needed to
    protect the overall bowl system and to preserve the exciting
    nature of the regular season.
        Now, in the past, proponents of the BCS have also argued
    that any playoff proposal would harm the schools' academic
    missions. Do you agree with any of those claims?
        Mr. Young. Not a single one of them, as it turns out. If
    you actually look at the regular season, I think March Madness
    in basketball certainly created a lot of excitement in a
    particular of period of time. But, in fact, because selection
    into March Madness depends in some large measure on performance
    on the court during the regular season, in fact, there is some
    substantial evidence that TV revenues for the regular season
    have actually gone up, not down, as has attendance as well.
        I think in addition, if you look at the regular season at
    the moment, given the way the system is structured, there are
    comparatively few games that have actual National Championship
    implications. I included this in my written testimony. If you
    go to a system, even a modified playoff system like ours--as we
    have suggested from the Mountain West--and I am not in any way,
    as I do not think the conference is, wedded to that particular
    system but simply trying to show there are alternatives that
    achieve all the objectives without engaging in harm. If you
    look at that system, it basically would extend the season by a
    week for two teams, and that hardly seems problematic,
    particularly given what Division II and Division III do in
    terms of their playoffs, where it is extended by 21 to 29 days,
    respectively.
        Eighty-eight NCAA sports, and only one without a playoff.
    My suspicion is if I were to ask any one of the students from
    any one of the non-BCS automatic qualifying conferences,
    ``Would you like to go to the West Coast and go to a party, or
    would you like to actually compete for the National
    Championship? '' I doubt there is little disagreement among the
    2,000 athletes who are currently largely precluded from
    participating in that.
        And, finally, with respect to destroying the bowls, in
    fact, since the BCS system has been created, there has been an
    addition of a number of bowls. The revenue for the existing
    bowls has actually gone up. There is very little evidence that
    that has harmed the bowl system. In fact, it appears by all
    evidence to have increased the number of bowls, enthusiasm for
    bowls, revenue for bowls in the United States as well. I think
    that is unarguable.
        Senator Hatch. I am going to get to you antitrust lawyers,
    so do not worry. I know President Young has to leave by 4, and
    I am trying to cover as much as I can with these two great
    presidents.
        Let me go to you again, Chancellor Perlman. Do you care to
    respond to that? It seems to me that the bowls outside the BCS
    exist on a completely separate plane and would not be affected
    by the establishment of a playoff. Also, under the current
    system, most teams are eliminated from National Championship
    consideration if they lose a single game, and their games fall
    off the national radar after that loss occurs.
        Now, wouldn't the establishment of a playoff mean that more
    regular season games have championship implications because
    teams would remain in contention even after they have suffered
    a loss?
        Mr. Perlman. Senator, I think with respect to the impact on
    the bowl games, I think in at least all of the proposals I have
    seen for a playoff, it would be inconceivable how that would
    work and still retain the bowl system as we know it. You cannot
    run--I do not think you can run Nebraska in the Rose Bowl 1
    week and if we win we go to Orlando the next week, and if we
    win that we go to the Cotton Bowl in Dallas and play for the
    National Championship. I do not think our fans are going to
    travel that much in December and January. I do not think they
    can afford to travel that much, which means that those teams
    will then be playing on their home fields.
        That withdraws a number of teams from the bowl system that
    currently are playing in bowls, and we can right now barely
    fill out the bowls that we have. I do not think you can think
    it will not have a diminished impact on the bowls across the
    country if we went to a playoff system.
        Senator Hatch. President Young, we will end with you and
    let you catch your airplane.
        Mr. Young. From 1999 to 2009, it increased from 23 to 34
    bowls. The March Madness actually has increased the number of
    basketball tournaments around the country by a substantial
    margin, not decreased it.
        It is possible everybody will say these bowls, while they
    have been great for the thousand sponsors of these bowls--and
    it is about a thousand sponsors--will say, What were we
    thinking? This has not been good for the economy of our city.
    These teams that otherwise are not in this playoff system, we
    do not want to see them play; we do not want to have them; they
    are second and third in their conferences, so we are just going
    to cancel the bowl because there is now a playoff system.
        It is possible. But it strikes me as enormously unlikely.
    Possible, but I would be stunned if that is what happened.
        Senator Hatch. Well, thank you. You need to catch a plane.
    But, you know, there are some university presidents who would
    not want to testify in this hearing. Do you understand why?
        Mr. Young. I do not, really, and I will tell you why I do
    not: because this is part of a broad dialog. I have enormous
    confidence in my fellow presidents and chancellors that they
    understand that open, honest disagreement is the stuff of which
    great systems and great countries and great universities are
    made. If the notion is that somehow the University of Utah will
    be viewed badly because we aired these concerns, it strikes me
    as entirely implausible. I have the utmost respect for my
    fellow presidents, their athletic directors. I cannot imagine
    that they would stand back and say we are not going to schedule
    Utah. In fact, I think I just got an agreement we were going to
    be scheduled.
        Senator Hatch. All right, Perlman. I want to see this----
        [Laughter.]
        Mr. Young. So I appreciate that, Senator, but I think the
    great gift to America is higher education, and, for those who
    stand at the top of those institutions, I have enormous
    respect. I cannot imagine that these respectful disagreements
    on these issues will do anything other than deepen our
    collaboration, cooperation, and camaraderie.
        Senator Hatch. Well, thank you.
        Mr. Perlman. Senator, if I might just be permitted, I want
    to indicate the same thing. This is a conversation that has
    been going on for a long time. Any conversation depends on the
    perspective you have. It will not in any way diminish our
    respect for presidents that testify from a different
    perspective.
        The universities around this country have an enormous range
    of relationships. Intercollegiate football is just one. And,
    frankly, I do not think it is the most important one, and I
    think we engage collaboratively in a wide variety of areas for
    the good of the country, and I am sure that will continue
    regardless of what position is taken with respect to post-
    season football.
        Senator Hatch. Well, thank you. I expect that to be the
    case. I appreciate both of you being here. You need to catch
    your plane, and I would be happy to let you go at this time.
        Mr. Young. Thank you, Senator. I would be deeply grateful.
    I have a son getting married, and if I miss his wedding, I just
    have a feeling he will be very huffy.
        [Laughter.]
        Mr. Young. So I very much appreciate your indulgence. Thank
    you so much, and thank you for the privilege of testifying and
    for the opportunity to be with this enormously distinguished
    panel.
        Senator Hatch. I just want to tell everybody what a great
    university president you are. You are a terrific human being,
    and you have got a terrific intellectual background as well,
    which is always nice to see in a university president.
        Mr. Young. Will that be in the record, Senator?
        [Laughter.]
        Senator Hatch. It is on the record. We will send it to you.
        All right. Now, let me go to Mr. Monts, and we will excuse
    you, President Young. We appreciate your efforts in being here,
    especially with the family problems.
        Mr. Monts, in your written testimony, you purposefully
    limit your antitrust analysis to only a discussion of Section 1
    of the Sherman Antitrust Act. However, I believe that an
    analysis of both Sections 1 and 2 is required to fully
    appreciate and understand the legal arguments for modifying the
    BCS system. Now, how can one argue the BCS system does not
    violate Section 2?
        And let me just add one other thing. The Supreme Court in
    U.S. v. Grinnell lays out a two-part test for determining if a
    Section 2 violation has occurred. The first prong of the test
    asks if there is a monopoly power in the relevant market. Well,
    does not the BCS exclude competition by limiting the number of
    non-privileged conference teams which can qualify for the BCS
    bowl? And regarding the question of relevant markets, who would
    argue the vast sums expended to acquire the exclusive
    television rights for broadcast of the BCS bowls and the
    National Championship game is not evidence of distinct markets?
        Now, the second part of the Grinnell test, if the willful
    acquisition or maintenance of that power is distinguished from
    growth or development as a consequence of a superior product,
    business acumen, or historic accident, now here, again, I
    believe the Supreme Court's criteria is met. Has not the BCS
    acquired and maintained its monopoly power by limiting the
    participation of non-privileged conferences in the management
    of the BCS structure? And does the BCS not limit the five non-
    privileged conferences collectively to a single vote, whereas
    the privileged conferences get one vote each? Now, how can you
    say that Section 2 is not violated under those circumstances?
        I asked a number of questions there, and I would be happy
    to repeat them if----
        Mr. Monts. I may need you to unpack them again for me,
    Senator, but I will address those, because I think the first
    question or the question you raised about the question of
    governance is not really an antitrust issue at all. There is a
    BCS Presidential Oversight Committee. That committee was
    created with the agreement of all conferences, all 11
    conferences and the University of Notre Dame. At the time it
    was created, that was a request that was made by those five
    conferences to have one seat on that committee, and that was
    agreed to.
        Senator Hatch. I understand that if the University of Notre
    Dame finishes eighth or better, it will qualify for one of
    the----
        Mr. Monts. If the University of Notre Dame finishes eighth
    in the Nation or better, it in that season will earn an
    automatic berth in a BCS bowl game.
        Senator Hatch. That is my understanding.
        Mr. Monts. Just as if a team in one of the five other
    conferences finishes 12th or better, a champion finishes 12th
    or better, or 16th and higher than one of the champions from
    the annual automatic qualifying conferences, it, too, will earn
    an annual automatic berth.
        Senator Hatch. Right.
        Mr. Monts. Now, I think the way to look at this, Senator,
    is to look at it in comparison to what we would have without
    the BCS, and this is where I think the antitrust argument falls
    flat, and it is this: Without the BCS, we would simply be back
    in the old bowl system in which each conference makes its own
    bowl arrangements. That is what we had for many, many years
    prior to 1991 with the formation of the Bowl Coalition and what
    we would return to if the BCS went away. We would have each
    conference negotiating for the best bowl deal it could arrange
    for its champion and for its runner-up teams, just as we have
    today.
        Senator Hatch. Not if you have a playoff system.
        Mr. Monts. No court is going to write that, Senator. None
    whatsoever. That is not what courts do.
        Senator Hatch. There are some that would.
        [Laughter.]
        Senator Hatch. I can even name the judges.
        Mr. Monts. But no court has the authority, in my view,
    under the antitrust laws, and it would be extraordinary, in my
    view, because the BCS is a form of cooperation today if we
    assume a Section 1 agreement.
        Now, what we are asking, what is being asked of the court
    is to enjoin the BCS and then replace it with another form of
    cooperation. That is not what the antitrust laws do. Courts do
    not sit there and serve as super-regulatory bodies or public
    utility commissions to deal with post-season college football
    or any other----
        Senator Hatch. No, but they can decide what is right and
    wrong.
        Mr. Monts. Pardon?
        Senator Hatch. They can decide what is right and wrong.
        Mr. Monts. Certainly, Senator. They will decide----
        Senator Hatch. Once they do that, then you have to comply.
        Mr. Monts. But the remedy that would be issued by a court
    is simply an injunction against the BCS agreement, and then
    each conference would be on its own in terms of negotiating its
    bowl arrangements. That is essentially what happened with the
    NCAA v. Board of Regents case. The Supreme Court issued a
    decision, the NCAA television agreement was enjoined, and each
    conference is now selling its own regular season television
    rights individually. The same thing would happen with the BCS
    if it were to go away.
        Senator Hatch. Mr. Brett, do you agree with that?
        Mr. Brett. No, I do not, Senator Hatch.
        Senator Hatch. Would you hit your button there?
        Mr. Brett. I am sorry. I do not. The fact is that in all
    the years that I have been practicing--and it is,
    unfortunately, a lot longer than Mr. Monts. In fact, I was in
    the Grinnell cases way back when. And I know how in each one of
    those cases and in every monopoly case the defendant will
    invariably claim that this is the only way to do it, we must do
    it, this is the best system, and we are doing something good.
        It is unheard of, in antitrust parlance, for a group of
    competing entities to form their own cartel, set up a series of
    rules, and say this is the best way to do it, therefore, allow
    us to do it.
        We have abundant evidence that their claim that this is the
    best system and the only system is a flawed premise. In fact,
    there are 88 playoffs run by the NCAA. It is very curious that
    in the most lucrative of sports, the NCAA has stepped out of
    the picture and allowed this separate cartel to function. The
    NCAA has rules operative in the basketball program which
    require that all teams involved that are invited, participate
    and play within that structure.
        A structure administered by the NCAA, for example, could
    very easily adopt a playoff system and implement a playoff
    system.
        The suggestion that this is the best or the only way to do
    it is not a decision that should be made by a group of
    competitors by agreement in a manner which excludes competing
    companies and excludes others who are not involved. The data as
    to the impact of this system is abundant. The data to show the
    discriminatory and anticompetitive effects is abundant. The
    impact on the public, which is the primary concern of the
    antitrust laws, is dramatic.
        There can be little doubt that if there were a playoff
    system or some free competition, every school in the country
    would want to participate. Can one imagine USC and Texas, which
    were so indignant at not having the opportunity to compete for
    the National Championship last year, saying that they would not
    want to participate in that competition? And we would have all
    liked to see those games, see USC, see Texas in there.
        Their system is one that does not make sense, but it just
    simply follows the practice of every monopolist of saying we
    have to do it. Those arguments were made by the NCAA in the
    Board of Regents case. They were made more recently in a case
    where they tried to limit the compensation given to coaches.
    And, again, in all those circumstances the courts evaluated and
    rejected the arguments of the NCAA that, ``Our way is the best
    way and the only way to do it.'' The evidence does not support
    it, and the fact that they can do 88 playoffs in other sports
    suggests that there is no reason that it cannot be and should
    not be done in this sport as well.
        Senator Hatch. In your testimony, Mr. Brett, you argue the
    BCS violates Section 1 of the Sherman Antitrust Act. In his
    written testimony to the Committee, Mr. Paul Kaplan of our very
    important law firm down here, one of the important firms, Arent
    Fox, agrees with your analysis that there is a Section 1
    violation. However, Mr. Kaplan argues the BCS construct should
    be evaluated under a per se rule.
        Now, he argues the BCS system is an illegal horizontal
    constraint. On the other hand, you argue for a rule-of-reason
    analysis, as I understand it. Why do you believe the
    Subcommittee should evaluate the BCS system using the rule of
    reason? And if we use the per se rule, do we reach a different
    conclusion? In addition, do you believe the BCS system violates
    the rule of reason?
        Mr. Brett. I do believe it violates the rule of reason. I
    think that there are certainly indicia of the BCS system which
    reflect areas to which the per se rules apply. Certainly there
    is an absence of price competition with respect to bowl games,
    bowl televising of games, and they are sold as a package. Those
    are certainly areas of practice which could be subject to per
    se consideration.
        We in our submission took a more conservative view of
    saying that we do not have to deal with the per se rules which
    the Supreme Court has sought to narrow, which were not applied
    in the Board of Regents case and the more recent law case; so
    that without dealing with that controversial proposition, we
    think it is very clear under the rule of reason that it is a
    violation of Section 1 of the Sherman Act, and we think it is
    also very clear that it is a very, very obvious violation of
    Section 2 of the Sherman Act; that there is absolutely no doubt
    that this monopoly was illegally acquired and maintained and it
    continues to be maintained by exclusionary conduct. The
    relevant market is easy. The monopoly power is manifest. And I
    do not know even know what the arguments are that would be
    advanced in defense.
        Senator Hatch. Well, so would it not be safe to say that a
    reasonable case can be made under both the per se and rule-of-
    reason analysis that there is a violation here?
        Mr. Brett. Absolutely.
        Senator Hatch. If you have a----
        Mr. Monts. I do, Senator, because I do not think there is
    any credible case to be made on the per se rule. There would be
    no BCS without an agreement, and there would be no other
    alternative system without an agreement among the conferences
    and the participants.
        In fact, the only way that we can have any kind of post-
    season structure of any sort, no matter how it is structured,
    is through an agreement of the parties. So the suggestion that
    there is a per se violation in any way here strikes me as
    simply flatly wrong.
        In terms of the rule of reason, the question in antitrust
    is output, and there is no game that I am aware of that is not
    played; there is no conference that is not playing--no team
    that is not playing the maximum number of games it is entitled
    to play under NCAA rules.
        The fact of the matter is there is just no output
    restriction here whatsoever, and that being the case, there is
    no violation at all.
        Senator Hatch. Mr. Brett.
        Mr. Brett. There is certainly restraint on output. If there
    were a playoff system as proposed by the Mountain West, for
    example, there would clearly be two or three additional games
    played each year, and one can imagine the revenues that would
    be generated by games that would have that kind of imprimatur
    of a genuine National Championship. If they are paying half a
    billion dollars for these games, imagine what they would pay
    for the Super Bowl of college football. So that there is a
    restraint on output. There are less anticompetitive
    restrictions or restraints on matters in which the same results
    can be achieved, and those have to be considered. And not only
    is there a restraint on output, there are exclusionary rules
    adopted by this self-designated group, with no portfolio and no
    authority such as the NCAA or any other group would have. They
    designated themselves as the arbiters of what is necessary to
    create a system where they get 87 percent of the revenues. That
    is just directly contrary to the spirit and objectives of the
    Sherman Act.
        Senator Hatch. Let me ask both Mr. Monts and Chancellor
    Perlman, if you care to comment, Chancellor. Many have argued
    that a playoff system would mean more money not only for the
    privileged BCS conferences but for all the schools in the
    country. I have to assume that television networks,
    advertisers, and sponsors would welcome some sort of a playoff
    system if for no other reason than it would mean a few more
    games.
        Now, wouldn't that be the case? Wouldn't the playoff system
    mean more money for everybody?
        Mr. Perlman. It might, Senator, but I do not think you can
    be assured of that. If we are right that the value of the
    regular season would decline with a broader playoff, then it is
    not clear the total amount of money would be the same.
        But as a university president sitting between two antitrust
    lawyers, I would just comment that I think university
    presidents that I talk to are legitimately concerned about the
    number of games that you can ask student athletes to play under
    these circumstances and at this level, not only for the health
    of student athletes but for their academic success.
        These athletes are strong, they are fast, and they get beat
    up in these games. And I think that there are limits to how
    many they would play, and I guess I would argue that at least
    that output restraint would have some basis in reason.
        Senator Hatch. OK. Mr. Monts.
        Mr. Monts. I certainly agree with Chancellor Perlman, but
    the question is the overall revenues from all of college
    football, regular season and post-season.
        I part company with Mr. Brett, I think, on a couple of
    avenues. The argument that output is restricted because if we
    had a playoff there would be more games is a little bit like
    saying, well, we would have more games if the National Football
    League extended its season to 18 games or 20 games rather than
    the current 16; or we would have more output if the NCAA did
    not limit regular season games to 12--or 13 for those who
    travel to Hawaii--but had 15 or 16. There must be some limit on
    that, and so no matter what the structure is, one could always
    hypothesize a different format that would come up with more
    games.
        The difficulty, I think, again, Senator, is going back to
    what would we have if there were an antitrust injunction
    entered against the BCS, and the answer is we would have each
    conference selling its own bowl rights individually, and the
    only way we could have any kind of structure that would create
    any sort of National Championship playoff or any alternative
    structure to the BCS would be through some other agreement of
    those conferences and Notre Dame.
        This is the agreement that the conferences and Notre Dame
    can reach. To have a National Championship requires the
    participation of each and every one.
        Now, several conferences have alternatives. For example,
    the Big 10 and PAC 10 have played for many, many years in the
    Rose Bowl, going back to January 1, 1947. Those conferences
    have that alternative, and if they wish to simply go back to
    the Rose Bowl and not participate in the playoff, that will be
    their prerogative, and there will not be a National
    Championship structure. It will be very difficult to go to any
    sort of television network or even to the public at large and
    say, ``We are going to have a National Championship
    arrangement, but we will not have USC, Michigan, Ohio State,
    Penn State''--or many other fine teams.
        The same thing would be true if the Big 12 or the
    Southeastern Conference decided for whatever reason it wanted
    to continue individually its own bowl arrangement with its
    historic bowl partners. So the only way are going to have a
    championship is by the participation of all conferences.
        Now, let me address one other point that Mr. Brett made,
    because I think it actually makes my point rather than his, and
    that is, the NCAA's rule requiring mandatory participation in
    the Men's Basketball Championship. That rule was tested in the
    Metropolitan Intercollegiate Basketball Association v. NCAA
    case in New York. MIBA was the former operator of the NIT, the
    National Invitational Tournament, which was a competitive post-
    season tournament with the Men's Basketball Championship. The
    specific challenges that MIBA raised in that case were to the
    mandatory participation rule and to the one-post-season-
    tournament rule that the NCAA had imposed.
        Now, MIBA survived a motion for summary judgment, meaning
    that the NCAA was going to have to try that case and at the
    risk of losing its mandatory participation rule, which is
    crucial to the playoff. So it settled it for $57 million.
        Now, the bowls would be in the exact same position today as
    the NIT if there were a playoff and they were deprived of
    teams. They would be deprived of the ability to compete for
    teams. That litigation playbook, I think, has been written, and
    I believe it cuts far more in favor of our position than it
    does Mr. Brett's. So we must respectfully disagree on that
    point.
        Senator Hatch. Mr. Brett, do you have any comments?
        Mr. Brett. Well, first, I am quite familiar with Judge
    Cedarbaum's decision in the MIBA case, and it was not settled
    for $57 million. The NCAA bought the National Invitation
    Tournament, so there was no payment made and there was
    certainly no adjudication that the rule we referred to was
    incorrect.
        But I think more fundamentally, Senator, the real problem
    here is that what we have before us at the BCS now is a group
    of competitors who have formed a cartel which has worked out to
    their great advantage. They have managed to secure for
    themselves 87 percent of the revenues and 90 of the 94 spots in
    the major bowls. And now they come in and tell us you must
    allow us to make the decision as to how these revenues are
    distributed, how these people are selected for the bowls,
    because we know the best way to do it. The fact that it works
    out to our great economic advantage is almost coincidental, but
    trust us, trust us to make the best decisions.
        That is directly contrary to what the Sherman Act requires,
    and it is directly contrary to the jurisprudence under
    antitrust law, where every single case will see a defendant
    coming in and saying, ``What we did was good and wholesome. We
    really did not mean to do anything harmful.'' And the NCAA has
    lost again and again in asserting that its views as to the way
    to restrict competition were essential.
        The law is that competition, and not a group of self-
    designated competitors who should be competing, makes the
    rules. And it is not coincidental that the rules which they
    make, when we look back at their effect, have been dramatically
    in favor of those six conferences. And antitrust jurisprudence
    is to look for anticompetitive effects, and these effects have
    been dramatically and offensively anticompetitive.
        Senator Hatch. Well, let me just say, this has been a very
    interesting hearing for me, and you all have been excellent
    witnesses.
        I have to say I am having a lot of troubles with the BCS
    approach because, you know, Mr. Thompson comes up with some
    ideas, and maybe they were not what the BCS wanted, but they
    just kind of dismissed it without argument. And there is kind
    of an arrogance there that I see that just should not be there.
    And you know who I am talking about, too, and you are not it.
    But the fact of the matter is that I am really concerned about
    it because I think it is really the wrong example for our young
    people, and it is certainly not working well. And I do
    believe--I hate to say it to you, Mr. Monts. You have been very
    loquacious, and you are undoubtedly a good attorney. But I
    believe there are real antitrust issues here that are not going
    to be solved unless the folks at BCS start to work to resolve
    these matters.
        And, Mr. Perlman, I know a lot about you. You are a very
    fine man and a very good university administrator. I want you
    to go back and argue with these people and let them know that,
    hey, we are sick of it, to be honest with you. And I think Mr.
    Brett has made a pretty darn good case here today.
        Did you have something you wanted to say? I do not want to
    cut you off.
        Mr. Perlman. I am sorry. I just wanted to clarify the
    record.
        Senator Hatch. Sure.
        Mr. Perlman. The BCS agreement that will start in 2011 was
    agreed to by all the conferences in November of 2008. The
    Mountain West proposals were brought to us after we had reached
    that agreement, and it was the position of the ten conferences
    that we would honor our commitments to ESPN and not review the
    Mountain West proposals at that time. But they have not been
    summarily rejected and, indeed, what we have stated publicly is
    that when the next BCS agreement is negotiated, we will
    consider the proposals of the Mountain West as well as any
    other proposals for changing the Bowl Championship Series to
    make it better.
        Senator Hatch. That is a long time away.
        Mr. Perlman. Well, it is actually not as long as you might
    think, because we start renegotiating the agreement about a
    year into whatever agreement we have. It is not immediate, but
    the fact is that all ten conferences have made a commitment to
    the current system, and we have signed an agreement to that
    effect with ESPN. And all of us thought that we did not want to
    upset that agreement and we thought we ought to honor our
    promises.
        Senator Hatch. Mr. Brett, do you have any comment about
    that?
        Mr. Brett. There is right now a July 9 deadline for the
    signing of the agreement. Counsel for the Mountain West has
    requested that that deadline be extended to allow everyone to
    digest and take into account these proceedings and other events
    which are now going on.
        The ESPN agreement contemplates that it would be revised if
    the current system has to be upset for any reason, and it
    contemplates the possibility of it being upset for antitrust
    violations implicitly.
        There is no reason that that deadline cannot be lifted and
    there be given time for everyone to work out a more equitable
    system that does not violate the antitrust laws. Unfortunately,
    as history teaches us, one of the great evils of monopoly power
    is the arrogance and the willingness to move ahead and exercise
    that power. And that is what happens when you have a
    monopolist.
        Mr. Perlman and his colleagues are fine people, and I have
    been very impressed and very privileged to sit with him here
    today and hear his views. But they have gotten themselves into
    a situation where they have made so much money, they have got
    an economic interest that they want to keep, and it is being
    protected by a group of competing companies that have avoided
    competition. It is time that that stopped, and I think your
    observations were appropriate. There is no reason that contract
    has to be signed now.
        Senator Hatch. Well, thank you. I want to thank all three
    of you, and certainly President Young as well, for being here.
    This has been one of the most interesting hearings to me that
    we have had around here in a long time, and it is great to have
    great witnesses who could testify. So I appreciate your being
    here. You have not changed my viewpoint. In fact, it is
    reinforced, and in all honesty, I am very, very concerned about
    it as a Pitt graduate, you know, the law school.
        All I can say is that this has been an informative hearing,
    and I am grateful for the four of you for taking your time to
    be with us today.
        With that, I am going to have to end the hearing. Thanks so
    much.
        Mr. Brett. Senator Hatch, thank you, and thank you for
    allowing us to participate in this great exercise in democracy
    not available anywhere else. We appreciate the opportunity and
    the privilege.
        Mr. Monts. Senator, it has been an honor. Thank you very
    much.
        Senator Hatch. An honor for us. Thanks so much.
        [Whereupon, at 4:11 p.m., the Subcommittee was adjourned.]
        [Submissions for the record follow.]

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