Examining the Defendants' Arguments in College Basketball's Corruption Case

SI.com's legal expert breaks down the defendants' argument, which recalls a 25-year-old college football corruption case.

Everyone agrees that a college coach directing money to a prized high school recruit in hopes that doing so will motivate the recruit to attend a particular college constitutes a violation of NCAA amateurism rules.

But not everyone agrees on whether this sort of payment is “fraud” from an ethical or legal standpoint.

The ethics—or lack thereof—of paying recruits

The fact that coaches, agents, “financial advisors,” sneaker executives and other industry players sometimes conspire to pay recruits is hardly a revelation. In spite of NCAA rules and NCAA enforcement practices, this type of activity has occurred for decades. It typically takes place without public detection since everyone involved has an incentive to keep it quiet.

Whether these “under the table” payments ought to occur is a separate issue. Some believe it is unethical to pay a recruit because the money contributes to an intentional plot to circumvent well-known NCAA rules. Many of the persons who partake in the payment also agree to follow these rules. Take the recruit. The recruit agrees to follow NCAA rules as a condition of receiving an athletic scholarship. Now consider the coach. The coach contractually accepts these rules as a condition of employment at an NCAA member institution. Shouldn’t they honor their commitments?

Further, the NCAA insists that amateurism rules must be obeyed in order for a clear line between professional and amateur sports to exist. Without these rules, the NCAA has reasoned, the link between college sports and college education would weaken and the vast majority of college athletes who won’t turn pro would suffer.

Yet others contend that the recruit should be able to profit from his or her marketable talents. After all, why should coaches at top programs earn millions of dollars a year when their players—who attract the fans and TV ratings and who are always one injury away from their dreams ending—can’t receive more than reimbursement for tuition, room and board, books and other NCAA-approved expenses? Why should colleges collectively, but not individually, decide on the maximum amount of compensation players can accept from any of these colleges? And why do players have no place in that discussion?

These critics also stress that any line that may have existed between professional and amateur sports is long gone, at least in big time college sports. Likewise, serious questions have been raised about the academic integrity of educational programs that are geared towards helping star athletes remain eligible (the “fake classes” scandal at the University of North Carolina at Chapel Hill being a telling example).

The law of paying recruits

Until a few months ago, debate on paying recruits had largely been confined to philosophical discussions about fairness in college sports and to academic deliberations about what is “right” for college athletes.

And then the September 2017 college basketball indictments came along.

Suddenly, an intriguing policy question became a very real—and very serious—legal controversy: Is paying recruits a crime?

As detailed in previous SI.com legalanalyses, the U.S. Department of Justice contends that using money to induce high school recruits into (1) selecting a particular college and (2) hiring a particular business manager for an NBA career is, in fact, a crime. Not just any crime, but felony-level criminal misconduct.

In several related cases, the Justice Department has charged a group of assistant college basketball coaches, financial advisors and sneaker executives with conspiracy to commit bribery, wire fraud, money laundering and related charges. If convicted, the defendants—some of whom would face maximum prison sentences in excess of 100 years—could spend the next chapter of their lives behind bars. Judge Edgardo Ramos of the U.S. District Court for the Southern District of New York is presiding over the litigation, which will take many months, if not several years, to play out.

The government’s interpretation of criminal fraud in college basketball

A key aspect of the government’s case is its depiction of fraud as a criminal act. The government contends that conspiracies to “bribe” recruits and their families have “defrauded” several universities, including the University of Louisville and the University of Miami. These bribes led schools to recruit and enroll athletes who were, under NCAA rules, ineligible to compete. From that lens, the conspiracies harmed the colleges: persons acting on behalf of the colleges brought to campus recruits who, by accepting “bribes,” were not eligible to play. Enrollment of these recruits as student-athletes would therefore cause the colleges to violate NCAA rules and, potentially, suffer NCAA punishments. These colleges also endured opportunity costs by assigning athletic scholarships to ineligible players when those same scholarships could have been used to recruit other players.

In articulating this depiction of fraud, the Justice Department stresses that the government was also harmed. Almost all colleges receive various forms of federal funding, without which the economics of college education would radically change. Grants, loans, financial aid guarantees and insurance programs are just some of the ways the federal government financially assists colleges in the United States. Therefore, a conspiracy to pay a recruit to attend a college also harms the government and, by extension, the citizens who fund the government. This is because a taxpayer-funded college—through its coach and other representatives—has engaged in a corrupt act that deprives the government of its rightful investment.

The defendants’ very different interpretation of criminal fraud in college basketball

In a recent court filing, attorneys for three of the defendants (Adidas director of global marketing James Gatto, basketball organizer Merl Code and sports management executive Christian Dawkins) assert that the Justice Department’s theory of criminal fraud in the college basketball case doesn’t actually describe a crime. From those attorneys’ perspective, the Justice Department is attempting to criminalize NCAA violations without accompanying support from the law.

As a starting point, the defendants’ attorneys enunciate a basic proposition: “It is not against the law to offer a financial incentive to a family to persuade them to send their son or daughter to a particular college.” While the attorneys acknowledge that such an incentive might violate NCAA rules, those rules are not the law. NCAA rules are contractual restrictions imposed by a private association of colleges for the purpose of efficiently integrating college sports into college education.

To advance the argument that no crimes occurred, the defendants’ attorneys insist that a conspiracy between coaches and others to benefit a recruit can’t fall within any logical definition of wire fraud. This is because such a scheme is designed to benefit the colleges whereas wire fraud has traditionally concerned harming the victim of the fraud. Indeed, an exchange where a recruit receives money as an inducement to attend a particular college benefits that college—at least in part. The college lands a star player who, if he is not deemed ineligible, will help the team win games and whose presence might increase sales of tickets, broadcasts, merchandise and apparel. If all goes well, a year or two later this recruit might join an NBA team. The college could then highlight this achievement while recruiting other players. Everyone seemingly wins.

Likewise, there is no evidence that these three defendants sought to harm the colleges. In fact, the opposite appears true: Gatto, Code and Dawkins likely hoped that participating colleges would excel since such success would expand their own influence as college hoops powerbrokers. To further that point, any payments or bribes made by the defendants were done with the request or blessing of the coaches.

The defendants’ attorneys also stress that their clients never sought to obtain anything of value from their supposed victims, the colleges. The conspiracy to bribe recruits was aimed at placing star recruits into particular college programs. None of those colleges paid Gatto, Code or Dawkins to engage in such a conspiracy, nor did these colleges finance any payments made at the direction of the defendants.

That’s not to say the three defendants wouldn’t have benefited handsomely from a conspiracy. Gatto, for instance, would have enlarged his and Adidas’ influence over handpicked college basketball programs. Dawkins, for his part, would have become better positioned to land NBA clients. But wire fraud normally requires some sort of exchange between the fraudsters and their victims; here the exchange would be indirect.

As described above, the Justice Department endorses a much more expansive account of harm to colleges. The Justice Department stresses that the “bribes” led to the enrollment of ineligible players who jeopardized the school’s compliance with NCAA rules. Further, a bribed player on a scholarship denies the school of the opportunity to use that scholarship on another player. The conspiracy also caused a government-subsidized institution to have employed a coach who partook in an unethical, if not unlawful, conspiracy. Yet from the vantage point of the defendants’ attorneys, even if everything the government describes took place, none of it constitutes a violation of criminal law.

A 25-year-old case on college sports corruption resurfaces

The defendants’ attorneys believe that precedent is on their side. In their court filing, they cite the U.S. Court of Appeals for the Seventh Circuit’s 1993 decision in U.S. v. Norby Walters. The Walters case centers on former NFL agent Norby Walters who, along with fellow agent Lloyd Bloom, was indicted in 1988 with racketeering, mail fraud and conspiracy to commit extension.

During the 1980s, Walters and Bloom paid dozens of college football players thousands of dollars and provided them with other benefits such as cars, plane tickets and hotel accommodations. They did so as part of a contractual relationship with those players. The players signed contracts with Walters and Bloom that stated, in sum and substance, that they would hire Walters and Bloom upon the expiration of their collegiate eligibility. To protect the players, Walters and Bloom then hid the contracts.

These contracts were, of course, in violation of NCAA rules: the players accepted benefits from agents while still playing college football. But these agreements were not necessarily breaking the law. In fact, if one ignores the college sports setting, they seemed like ordinary contracts: one party was paid in exchange for agreeing to do something in the future.

The Walters and Bloom scandal was one of the first major college sports corruption controversies in the modern sports era. It received significant media attention back in the day, including in two detailed Sports Illustrated articles: Craig Neff’s Agents of Turmoil and Bruce Selcraig’s The Deal That Went Sour.

While the scandal ended Walters’ career as a sports agent and also led to a jury conviction, he ultimately defeated the criminal charges on appeal. Walters persuaded the Seventh Circuit that he could not have formed the requisite intent to defraud the colleges. Walters explained that he relied on guidance from sports law experts as to the legality of the contracts. The experts told him that although the contracts would violate NCAA rules, they would not break any law. The Seventh Circuit reasoned that if one believes he or she is following the law, the person lacks the necessary intent to defraud.

In addition, the Seventh Circuit failed to see how Walters could have defrauded the players’ colleges, whom the government—like in the current college basketball corruption prosecutions—portrayed as victims. “There is a deeper problem with the theory of this prosecution,” Judge Frank Easterbrook wrote on behalf of the Seventh Circuit. “The United States tells us that the universities lost their scholarship money . . .  [but] they were not out of pocket to Walters; he planned to profit by taking a percentage of the players' professional incomes, not of their scholarships.”

In other words, Judge Easterbrook found convincing the fact that Walters was not taking money from the colleges as part of the scheme. While the colleges lost scholarships due to NCAA violations that were caused (at least in part) by Walters, the loss wasn’t then transferred to Walters as a gain. Walters’ only gain would be through the salary commission he hoped to earn on the players’ NFL contracts. Such commissions obviously had nothing to do with the colleges.

Judge Easterbrook also reasoned that Walters did not defraud the U.S. treasury in a way that violates criminal law. Although the colleges harmed by Walters and Bloom’s scheme were, like the colleges harmed in the college basketball corruption cases, beneficiaries of federal aid, Judge Easterbrook reasoned that the harm to the government was too indirect and unintended to warrant criminal fraud.

To be clear, the Walters decision is only persuasive—meaning non-binding—authority on the college basketball corruption litigation in the Southern District of New York. The cases are in different federal circuits and rulings in one do not bind the other. Still, it is a ruling that deals with a similar fact-pattern. Further, in Judge Easterbrook, a very influential (if somewhat controversial) judge is the author of the opinion.

We’ll see how it plays out.

Michael McCann is SI’s legal analyst. He is also an attorney and the Associate Dean for Academic Affairs at the University of New Hampshire School of Law, and co-author with Ed O'Bannon of the forthcoming book Court Justice: The Inside Story of My Battle Against the NCAA.