College Football Association, et al.

Text (OCR of the scan at left; may contain errors)

IN THE MATTER OF COLLEGE FOOTBALL ASSOCIATION, ET AL.

FINAL ORDER, OPINION, ETC., INREGARD TO ALLEGED VIOLATION OF SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket 9242. Complaint, Sept. 5, 1990 -- Final Order, June 16, 1994 This final order dismisses the complaint which alleged that the College Football Association (CFA) and Capital Cities/ABC, Inc. illegally restrained competition through agreements which gave ABC exclusive rights to televise certain college football games. The final order to dismiss was due to the Commission’s lack of jurisdiction over CFA, citing its not-for-profit nature. Dismissal was also determined to be in the public interest. Appearances For the Commission: Michael E. Antalics.

For the respondents: Michael Sibarinm, Winston & Strawn, Washington, D.C. Clyde A. Muchmore, Crowe & Dunlevy, Oklahoma City, OK. A. Douglas Melamed, James Carr, Randolph D. Moss and David P. Donovan, Washington, D.C. COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act, (15 U.S.C. 41 et seq.), and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that the respondents named in the caption hereof have violated the provisions of Section 5 of the Federal Trade Commission Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues this complaint stating its charges as follows:

RESPONDENTS PARAGRAPH 1. Respondent College Football Association (“CFA”) is an unincorporated association with its principal place of business at 6668 Gunpark Drive, Boulder, Colorado. PAR. 2. CFA is an organization whose members include many of the nation’s major college-football-playing institutions, and which, Complaint 117 F.T.C.

among other things, negotiates and administers the sale of certain college football television rights for its participating members. PAR. 3. For the year ending December 31, 1989, CFA generated revenue of approximately $33.75 million from the sale of college football telecast rights.

PAR. 4. Respondent Capital Cities/ABC, Inc. (“Capital Cities”) is a corporation organized and existing under the laws of the State of New York with its principal executive offices at 77 West 66th Street, New York, New York.

PAR. 5. Capital Cities is principally engaged in television and radio broadcasting. ABC Television Network, one of the three major over-the-air television networks, is wholly owned by Capital Cities, which also owns 80% of ESPN, a cable sports programming service. PAR. 6. For the year ending December 31, 1989, Capital Cities had net revenue of $4.96 billion.

JURISDICTION PAR. 7. Each of the respondents maintains, and has maintained, a substantial course of business, including the acts or practices alleged in this complaint, in or affecting commerce, as “commerce” is defined in the Federal Trade Commission Act. ANTICOMPETITIVE ACTS OR PRACTICES PAR. 8. Respondent College Football Association, through agreement with and among its members pursuant to which its members have agreed not to compete with each other and the association, has entered into telecast rights agreements with telecasters that restrict competition in the marketing of college football telecasts.

PAR. 9. Respondent CFA and respondent Capital Cities (or entities owned or controlled by Capital Cities) have entered agreements which give Capital Cities exclusive telecast rights to certain college football games and which otherwise restrict competition in the marketing of college football telecasts. ANTICOMPETITIVE EFFECTS PAR. 10. By engaging in the acts or practices described in paragraphs eight and nine of this complaint, respondents have COLLEGE FOOTBALL ASSOCIATION, ET AL. 973 971 Initial Decision unreasonably restrained competition in the following ways, among others:

(a) Competition among schools in the marketing of college football telecast has been hindered, restrained, foreclosed and frustrated;

(b) Competition among telecasters of college football games has been hindered, restrained, foreclosed and frustrated; and (c) Consumers have been deprived of the selection of college football games that would have otherwise been televised in a competitive environment.

PAR. 11. The acts or practices of respondents described above constitute unfair methods of competition in or affecting commerce in violation of Section 5 of the Federal Trade Commission Act. These acts or practices are continuing and will continue, or may recur, in the absence of the relief requested.

Commisioner Azcuenaga dissenting.”

INITIAL DECISION BY JAMES P. TIMONY, ADMINISTRATIVE LAW JUDGE JULY 29, 1991 On this date my orders dismissing the respondents were filed. By Rule 3.24(a)(2) and Rule 3.51(a), the opinions supporting those orders shall be the Initial Decision in this case, wherein, as a matter of law, The complaint must be dismissed, without prejudice. Order re Motions to Dismiss, Coca-Cola Company of the Southwest, et al., Docket 9215, filed October 25, 1988.

ORDER DISMISSING COLLEGE FOOTBALL ASSOCIATION I. JURISDICTION OVER CFA A. Prologue * Commissioner Owen concurs in the issuance of the complaint, except to the extent that it alleges that contractual provisions governing the minimum and maximum number of appearances of a particular member school or conference violate Section 5 of the Federal Trade Commission Act. Initial Decision 117 F.T.C.

College Football Association (“CFA”) moves for summary decision’ for lack of jurisdiction, asserting that it is organized as a nonprofit association and is not “organized to carry on business for its own profit or that of its members.” 15 U.S.C. 44. Complaint counsel advance four theories for upholding jurisdiction: (1) CFA carries on business for the profit of its members, (2) the majority of its members are state agencies subject to jurisdiction, (3) CFA operates a business and not a charity, and (4) CFA members seek profits through their telecast activities. B. The Statute The starting point in determining the scope of the Commission’s jurisdiction must be the language of the statute itself. United States v. Turkette, 452 U.S. 576, 580 (1981).’ Section 5(a)(2) of the Act empowers the Commission “to prevent persons, partnerships, or corporations from using unfair methods of competition in or affecting commerce.” 15 U.S.C. 45 (a)(2) (1988). Section 4 of the Act defines the term “corporations” as used in the Act to include an association that is “organized to carry on business for its own profit or that of its members.” 15 U.S.C. 44 (1988). Thus, under the Act, the Commission has jurisdiction over the CFA only if it is organized “for its own profit or that of its members.” Traditionally, organizations do not “carry on business for... profit” unless they are organized to distribute dividends or other benefits in the nature of dividends to their members or shareholders.* Comment, “Piercing the Nonprofit Corporate Veil,” 66 Marq. L. Rev. 134, 136 (1982). Moreover, an organization does not operate for ! If the Commission lacks jurisdiction it cannot render a summary decision but must dismiss the action without prejudice. Factual disputes may be resolved in doing so. Cf, Prakash v. American University, 727 F.2d 1174, 1182 (D.C.Cir . 1984); Narios Corp. v. Natl Maritime Union of America, 236 F. Supp. 657, 659 (E.D. Pa. 1964), aff'd, 359 F.2d 853 (3rd Cir.), cert. denied, 385 U.S. 900 (1966). “The Federal Trade Commission is a creation of Congress, not a creation of judges, contemporary notions of what is wise policy. . . . The question to be answered is ‘not what the [Commission] thinks it should do but what Congress has said it can do.’” National Petroleum Refiners Assn v. FTC, 482 F.2d 672, 674 (D.C. Cir. 1973), cert. denied, 415 U.S. 951 (1974). The provision does not exempt nonprofit associations from operation of the antitrust laws; nonprofit associations are subject to suit in federal court under the Sherman and Clayton Acts. The provision, rather, limits the Commission’s jurisdiction over nonprofit organizations. Complaint counsel bear the burden of “‘affirmatively’” establishing that jurisdiction exists. Oliver v. Trunkline Gas Co., 789 F.2d 341, 343 (Sth Cir. 1986).

The author further explained: ‘That does not mean that [a nonprofit corporation] is prohibited from earning a profit. Rather, it is only the distribution of those earnings as dividends that is prohibited.” (Emphasis added.) 66 Marq. L. Rev. at 136. COLLEGE FOOTBALL ASSOCIATION, ET AL. 975 971 Initial Decision profit because it distributes benefits to other nonprofit organizations. The test is whether “any excess of revenue over expenses resulting from the operation . . . is distributed to any private person or company as a profit.” Logan Lanes, Inc. v. Brunswick Corp., 378 F.2d 212, 216 (9th Cir.), cert. denied, 389 U.S. 898 (1967) (interpreting the “not operated for profit” language in Robinson-Patman Act). A corporation is subject to Commission jurisdiction if it directly” or indirectly® pursues profits for itself or its members. The issue is not whether CFA and its members are participating in “commercial” rather than “charitable’”® activities. CFA admits it conducts commercial activities.’ And complaint counsel have much evidence of the commercial nature of college football as practiced by CFA’s members. A nonprofit organization, however, does not jeopardize its status by selling or buying property. A nonprofit organization may obtain revenues in excess of expenses. Receipt of income in excesses of expenses, making an organization capable of self-perpetuation or expansion, is not “profit” within meaning of Section 4. Community Blood Bank of Kansas City Area, Inc. v. FTC, 405 F.2d 1011, 1016 (8th Cir. 1969). Nor does an organization’s nonprofit status depend upon the source of its revenues. The test instead is whether the organization’s funds are properly used for recognized public 5 Ohio Christian College, 80 FTC 815 (1972), involved an ostensibly nonprofit corporation that directly pursued profits for the individual respondent. Cases finding jurisdiction over trade associations that indirectly pursued profits for the private persons or for-profit companies that were their members include American Medical Assn, 94 FTC 701, 926 (1976), enforced as modified, 638 F.2d 443 (2d Cir. 1980), aff'd by an equally divided Court, 455 U.S. 676 (1982); Michigan State Medical Soc'y, 101 FTC 191 (1983); National Commu on Egg Nutrition, 517 F.2d 485, 488 (7th Cir. 1975), cert. denied, 426 U.S. 919 (1976) (“NCEN was organized for the profit of the egg industry”); Nat’! Harness Mfgrs’ Assn. v. FTC, 268 F. 705, 706-10 (6th Cir. 1920) (“persons and concerns engaged in selling at wholesale harness and saddlery goods.”) 7 That was the issue in Hennessey v. NCAA, 564 F.2d 1136 (Sth Cir. 1977) where the NCAA unsuccessfully asserted “that it is outside the ambit of the antitrust laws.” /d. at 1148. In Hennessey the question was whether the NCAA was engaged in “commercial” activity, since NCAA argued that the Sherman Act was intended for the business world, and not for noncommercial aspects of activities which are educational. /d. at 1148. The CFA does not assert an exemption from the antitrust laws. “Charity” is only one of many recognized nonprofit activities under the federal income tax, 26 U.S.C. 501(c)(3), or under general law of nonprofit organizations, including educational, athletic, political, religious, social, and others. B.R. Hopkins, The Law of Tax Exempt Organizations (5th Ed. 1987) at p. 55; 19 Fletcher Cyc. Corp. Section 2:21 at p. 28. ° “Business” can be carried on by nonprofit or for-profit organizations. | Fletcher Cyc. Corp. Section 68.05 at p. 920. Section 4 of the FTC Act assumes that an organization beyond the Commission’s jurisdiction may conduct business activity; the statute neutrally refers to an association organized to “carry on business.” The distinguishing factor is whether it does so “for its own profit or that of its members.”

Initial Decision 117 F.T.C.

purposes, rather than distributed to private persons or for-profit companies.

C. Jurisdictional Theories 1. Commercial activity theory Complaint counsel argue that a nonprofit corporation is subject to the Commission’s jurisdiction if it “is essentially a commercial enterprise.” They rely on American Medical Assn v. FTC, 638 F.2d 443, 448 (2d Cir. 1980), aff'd by an equally divided Court, 455 U.S. 676 (1982) (“AMA”). But that case concerned whether individual, profit-seeking doctors obtained pecuniary benefits through the activities of their professional association.’ Complaint counsel also blend the jurisdictional requirement that respondent's activities affect commerce (Section 5) with the separate jurisdictional requirement that respondent must be organized for profit (Section 4). The Commission’s enforcement power extends only to organizations engaged in conduct “in or affecting commerce.” 15 U.S.C. 45(a)(2) (1988). Similarly, Section 1 of the Sherman Act applies only to contracts, combinations, and conspiracies “‘in restraint of trade or commerce.” 15 U.S.C. 1 (1988). Complaint counsel argue that their test, “whether an organization is a commercial enterprise,” is the same as whether an organization is “engaged in commerce” under Section 1 of the Sherman Act. Opposition at 13, n.11.'' They rely on Hennessey v. NCAA, 564 F.2d 1136 (Sth Cir. 1977) and NCAA v. Board of Regents of Oklahoma University., 468 U.S. 85 (1984). Both cases considered whether the conduct in question constituted “trade or commerce” under the Sherman Act. Neither case addressed the separate “for profit” requirement of the FTC Act. All parties agree that the controlling case on this jurisdictional issue is Community Blood Bank of Kansas City v. FTC, 405 F.2d 1011 (8th Cir. 1969), where the nonprofit corporation, Community Blood Bank, competed against two for-profit blood banks for the same customers. The Commission found that “Community and the 10 . . . .

The pecuniary benefit went to AMA members who were “engaged in the profit motivated private practice of medicine. . .” 94 FTC at 926. 11 . : .

This would read the “for profit” requirement of Section 4 out of the Act. Yet, Congress undoubtedly intended the Section 4 requirement to have independent meaning. United States v. Menasche, 348 U.S. 528, 538 (1955).

COLLEGE FOOTBALL ASSOCIATION, ET AL. 977 971 Initial Decision hospitals perform their functions in much the same manner as commercial entities!” such as the commercial blood bank and ‘forprofit’ hospitals, and receive compensation for goods supplied and services rendered.” 70 FTC at 909. The Community Blood Bank employed “method[s] [that] had the practical effect of insuring that hospitals [with two exceptions] would use only blood supplied through Community.” Jd. at 824. Nevertheless, the Eighth Circuit held that the Commission did not have jurisdiction, and it expressly ruled that the fact that Community and the for-profit blood banks functioned in the same manner and competed against each other was irrelevant. 405 F.2d at 1019.

The court held that the fact “‘that Community Blood Bank conducts its affairs in a businesslike fashion and makes profits on the sale of blood . . . is certainly of no relevance here.’”” 405 F.2d at 1019 (quoting Commissioner Elman’s dissenting opinion). The court ruled that the commercial source of the income was immaterial, explaining:

A religious association might sell cookies at a church bazaar, or receive income from securities it holds, but so long as its income is devoted exclusively to the purposes of the corporation, and not distributed to members or shareholders, it surely does not cease to be a nonprofit corporation merely because it has income, or keeps its books and records . . . in much the same manner as commercial enterprises.

Id. at 1019-1020."

The “commercial activity” test also finds no support in Jowa State University of Science and Technology v. United States, 500 F.2d 508 (Ct.Cl. 1974). In that case, the court held that a commercial television station owned by a state university constituted an “unrelated 2 .

In Community Blood Bank, “both the Area Hospital Association and Community were organized to carry on business in the broadest sense;” “‘[t}hey had permanent paid staff [and] a place of business”; they “kept records and files, collected dues, or fees”; and Community “bought supplies for the processing of blood [and] maintained an elaborate laboratory and storage facilities.” 70 FTC at 863- 864. Community’s contracts with the hospitals were “couched in terms of . . . commercial transaction[s}”; “Community paid donors $15 per unit” while charging “the hospital a $25 responsibility fee and a $9 processing fee, or $34"; “Community . . . actually secured a gross. profit on several of its operations”; and “the return on its entire operation was sufficiently in excess of total expenses so that it was able to repay some of the loans which were made to it at the time of its organization.” Id. at 764- 765, 836, 864.

3 After the Community Blood Bank case was decided, the Commission sought to amend Section 4 of the Act. Congress rejected the proposed amendment. H.R. Rep. No. 95-339, 95th Cong., Ist Sess. 120 (1976).

Initial Decision 117 F.T.C.

business” within the meaning of Section 511 of the Internal Revenue Code. The court explained:

Income accruing to an educational institution exempt from taxation under Internal Revenue Code Section 501(c)(3) is taxable if the income is generated by the operation of an unrelated trade or business. To be taxable, the activity in question must be (1) a trade or business, (2) regularly carried on, and (3) not substantially related, other than through the production of income, to the purpose for which the institution was granted exemption under Section 501. Treas. Reg. Section 1.513- 1(a)(2).

Id. at 516. Section 511, and the court's holding in Iowa State University, however, bear no relation to the question whether the Commission may assert jurisdiction over the CFA. College football television revenues are not unrelated business income under Section 511 and the Iowa State University case. Internal Revenue Service rulings hold that the CFA’s sale of college football telecast rights does not constitute an “unrelated business.”"* Complaint counsel argue that the Iowa State University case establishes that it is the “source” of the funds received, and not their “destination,” that determines whether the Commission has jurisdiction over an association under Section 4 of the FTC Act.'> The “source” of the income standard that was applied in the Iowa State University case is tied directly to the language that Congress used in creating the unrelated business tax,'® and has nothing to do with the 4 Revenue rulings relied upon by the CFA stress that “[t]he broadcasting of the organization’s .. regulated athletic events promotes the various amateur sports, fosters widespread public interest in the benefits of its nationwide amateur athletic program, and encourages public participation.” Rev. Rul. 89-295, 1980-2 C.B. 194, 195.

Before 1951 the Internal Revenue Code exempted from income tax corporations organized and operated exclusively for charitable purposes, and some courts held that colleges could obtain exempt income by owning for-profit corporations, engaged solely in business, the profit from which went exclusively to the nonprofit college, because it was the use of the income which indicated the nonprofit purpose, ¢.g., C.F. Mueller Co. v. Comm. of Internal Revenue, 190 F.2d 120 (3rd Cir. 1951) (New York University Law School obtained exempt income from a company making and selling spaghetti.) Noticing the loss of tax and the impact on for-profit companies by such tax exempt competitors, Congress then imposed a new tax on the institutions’ “unrelated business taxable income.” Kaplan, Intercollegiate Athletics and the Unrelated Business Income Tax, 80 Columbia L.R. 1430, 1432-34 (1980). The new statute shifted the focus from the use of the income, C.F. Mueller Co., 190 F.2d at 121, to the method of procuring the funds. Jowa State University, 500 F.2d at 518-19. Thereafter, the “source” of the income was the important consideration in determining the exemption. . . .” /d. 16 . . ar Some courts used the source of income test to tax such commercial organizations even before the feeder exclusion was added by the Revenue Act of 1950, e.g., University Hill Foundation v. C.LR., 446 F.2d 701, 703-04 (9th Cir. 1971), cert. denied, 405 U.S. 965 (1972). The unrelated business income amendment eliminated any doubt.

COLLEGE FOOTBALL ASSOCIATION, ET AL. 979 971 Initial Decision FTC Act. The Internal Revenue Code defines “unrelated business taxable income” to mean “the gross income derived by any organization from any unrelated trade or business.” 26 U.S.C. 512(a)(1) (1988). (Emphasis Added.) Section 4 of the FTC Act, in contrast, asks whether the association “is organized to carry on business for its own profit or that of its members.”'’ 15 U.S.C. 44 (1988). And, as shown above, an association is “organized to carry on business for ... profit” only if it can distribute the excess of revenue over expenses to shareholders or other private interests. The cases decided under Section 4 hold that the relevant test is “how [the organization] disposed of [its] profits.” Ohio Christian College, 80 FTC at 848; Community Blood Bank, 405 F.2d at 1019.

Commercial activity by CFA or its members does not constitute carrying on business for profit under the statute. 2. State school theory Complaint counsel argue that the Commission has jurisdiction over the CFA because many of its members are state instrumentalities -- and thus “persons” -- which receive pecuniary benefits from the CFA. They argue that cases like Massachusetts Board of Registration in Optometry, 110 FTC 549 (1988), and City of Minneapolis, 105 FTC 304 (1985), show that the Commission has jurisdiction over state agencies as ‘persons’ acting in a proprietary capacity. They do not allege that the state schools distribute any part of the telecast funds to individuals or firms who seek monetary gain. Rather, they concede that the “state schools act in the public interest and do not distribute revenue to shareholders. . .” Opposition at 27. Complaint counsel argue that action against the CFA is more efficient than action against CFA’s members. Opposition at 24-25. Jurisdiction, however, is a question of adjudicative power, not of convenience. Finley v. United States, 490 U.S. 545 (1989). Nor does the AMA case support the argument. In AMA a trade association was subject to the Commission’s jurisdiction because it operates to generate profits for private, profit seeking members. 94 FTC at 983. Here, the television revenues go, not for the profit of its members, but A literal reading of the statute would seem to mean that Commission jurisdiction is based solely on a nonprofit association’s organizational purpose, and not its operation. It is uncontested that CFA is organized as a nonprofit association. Initial Decision 117 F.T.C.

through CFA to the members to be used for tax exempt public purposes of education and amateur athletics. Moreover, the Eighth Circuit in Community Blood Bank held that the Commission lacked jurisdiction over the Kansas City Area Hospital Association because the Association -- like the CFA -- was not organized for profit. The court reached that result, even though 12 of the Association’s members were “instrumentalities of federal, state, county, or local governments,” 70 FTC at 767.'8 3. Piercing the corporate veil Complaint counsel argue that “the CFA is not truly a charitable enterprise,” and they maintain that they seek “to pierce the nonprofit veil of the enterprise.” They also promise to pierce the corporate veil of the state schools and show that their football programs are businesses. Tr. 109.'° These arguments are essentially the same as the commercial activity theory. But even if it were alleged that profits are being dispersed to profit seeking entities,” respondents have credibly asserted the lack of such evidence (findings 7 and 10, infra), and complaint counsel have offered no evidence in support. This action cannot continue based on possibility. In this situation, a party opposing a motion for summary judgment “must come forward with concrete evidence indicating the existence of a genuine issue of material fact,” Kreuzer v. American Academy of Periodontology, 735 F.2d 1479 1495 (D.C. Dir. 1984), and cannot rest on “conclusory allegations,” De Leon v. St. Joseph Hosp., Inc., 871 F.2d 1229, 1236 (4th Cir), cert. denied, 110 S. Ct. 87 (1989). D. CFA’s Nonprofit Purposes Federal tax law recognizes several proper nonprofit purposes, including, charitable, educational, scientific, religious, literary, and 18 Here, CFA’s 66 member colleges include three federal, 14 private and 49 state institutions. Appendix to CFA’s Motion for Summary Judgment, March 19, 1991. Even if they could prove that college football is a commercial enterprise, the jurisdictional test is whether the revenues are going to private individuals directly or as dividends. Complaint counsel argue that some coaches receive high salaries. In order to show that the CFA schools are operating their football programs “for profit” within the meaning of Section 4 of the FTC Act, complaint counsel would have to show, that their athletic programs are actually run by the coaches in order to generate profits for themselves -- paid out as dividends disguised as phony salaries. Complaint counsel do not allege, however, that any private person or for-profit company is receiving such disguised “profits” from the CFA or the colleges. COLLEGE FOOTBALL ASSOCIATION, ET AL. 981 971 Initial Decision promoting amateur sports competition. 26 U.S.C. 501(c)(3). CFA promotes both amateur sports competition and education. 1. Amateur athletic competition College football and television exposure of college football have nonprofit purposes. In 1976, Congress amended Section 501(c)(3) to include as a proper nonprofit purpose fostering5 1 5 1 3 9 1683 988 157 35 95.882538 national5 1 5 1 3 10 1867 998 42 25 95.882538 or4 1 5 1 4 0 571 1043 1335 51 -1 5 1 5 1 4 1 571 1049 247 37 96.605644 international5 1 5 1 4 2 844 1055 160 29 96.449440 amateur5 1 5 1 4 3 1027 1053 114 41 96.627678 sports5 1 5 1 4 4 1166 1046 266 46 84.427582 competition. P.L. 94-455, Section 1313, 1976 U.S. Code Cong. & Ad. News (90 Stat.) Vol. 1, p. 1730. Inclusion of amateur sports competition within Section 501(c)(3) rendered pursuit of this purpose -- by itself -- a sufficient basis upon which to confer nonprofit, tax exempt status. 26 CFR 1.501(c)(3)- 1(d)(1) ii).

CFA, through its television contracts and other programs fosters intercollegiate football and that in itself is a proper nonprofit purpose.”

2. Educational purpose CFA promotes educational purposes. Congress and the IRS have already determined that athletics has value to education and that football television has value to athletics. The Senate and House Committee Reports constituting the legislative history of the “unrelated income” tax laws state: Athletic activities of schools are substantially related to their educational functions. For example, a university would not be taxable on income derived from a basketball tournament sponsored by it, even where the teams were composed of students from other schools.

S. Rep. No. 2375, 81st Cong., 2nd Sess. (1950) at 29; H. Rep. No. 2319, sist Cong., 2nd Sess. (1950) at 37.

Internal Revenue Rulings state that an athletic organization’s sale of telecasting rights of an athletic event is not an unrelated trade or business under IRC Section 513 (the unrelated business income statute), and that a university’s television contracts, whether through an athletic association or otherwise, are related to its exempt purpose 21 woe . .

CFA’s organizational documents show that its purpose fosters national amateur sports competition (App. Tab 4, p.1, Art. II). Complaint counsel apparently concede this point. “([S]tate schools act in the public interest and do not distribute revenue. . . .”) Opposition Brief at p. 27. Initial Decision 117 F.T.C.

within the meaning of Section 513. See the Revenue Rulings attached as Exhibits “B,” “C,” and “D” to CFA’s Supplemental Brief, Rev. Rul. 80-296, 80-295, and 80-294, respectively. In Private Letter Rulings, the IRS scrutinized whether a large university which was a member of a national athletic association realized unrelated income from the sale, by the athletic association, of the telecasting rights for the university’s football games.” The IRS explained some of the purposes served by public exposure of a football game: For example, an audience for a game may contribute importantly to the education of the student-athlete in the development of his/her physical and inner strength and to the education of the student body and the community-at-large in heightening interests in and knowledge about the participating schools. In regard to the studentathlete, the knowledge that an event is being observed heightens its significance, which raises the levels of both competitive effort and enjoyment. Attending the game enhances student interest in education generally and in the institution because such interest is whetted by exposure to a school’s athletic activities. Moreover, the games (and the opportunity to observe them) foster those feelings of identification, loyalty, and participation typical of a well-rounded educational experience.” 95 IRS Letter Rulings, CCH Reports 7851002, Dec. 26, 1978. The CFA’s television rights to college football games, with the proceeds going to the schools to help support their athletic programs,” have a nonprofit educational purpose. 3. CFA’s nonprofit status In determining whether an organization is carrying on business for “profit,” the Commission and the courts defer to an IRS determination that the organization qualifies as tax exempt under Section 501(c)(3). The reason for this respect is in American Medical Assn, 22 IRS Private Letter Rulings 7851002, 7851005, and 7851006, 95 IRS Letter Rulings, CCH Reports, Dec. 26, 1978.

While private letter rulings do not have precedential value, the rationale makes sense, and the Revenue Rulings attached to CFA's Supplemental Brief, which incorporate the same holdings, represent the official position of the Internal Revenue Service. 26 CFR 601, Section 601.601. They are entitled to great5 1 11 1 3 3 745 2598 150 23 83.746124 deference.”5 1 11 1 3 4 904 2599 86 23 93.255592 Amato5 1 11 1 3 5 1004 2606 18 16 90.909851 v.5 1 11 1 3 6 1039 2599 103 23 96.658882 Western5 1 11 1 3 7 1158 2599 78 24 96.421463 Unions 1 11 1 3 8 1249 2599 178 27 93.293121 International,5 1 11 1 3 9 1442 2600 57 26 92.840240 Inc.,5 1 11 1 3 10 1513 2600 46 24 96.043747 7735 1 11 1 3 11 1573 2600 58 24 96.211304 F.2d5 1 11 1 3 12 1648 2601 68 27 96.543747 1402,5 1 11 1 3 13 1734 2601 104 24 96.782227 1411-125 1 11 1 3 14 1852 2601 42 28 96.381439 (2d5 1 11 1 3 15 1906 2602 48 23 96.521194 Cir.4 1 11 1 4 0 621 2640 77 28 -1 5 1 11 1 4 1 621 2640 77 28 95.641724 1985).2 1 12 0 0 0 616 2682 1339 261 -1 3 1 12 1 0 0 616 2682 1339 261 -1 4 1 12 1 1 0 704 2682 1250 52 -1 5 1 12 1 1 1 704 2682 14 19 81.186844 45 1 12 1 1 2 742 2701 106 23 95.046883 Football5 1 12 1 1 3 858 2701 123 23 96.830147 televisions 1 12 1 1 4 991 2708 113 17 96.723312 revenues5 1 12 1 1 5 1114 2709 30 16 96.943314 on5 1 12 1 1 6 1154 2701 38 24 96.916924 thes 1 12 1 1 7 1201 2709 100 23 96.337708 averages 1 12 1 1 8 1309 2702 118 30 96.266663 comprises 1 12 1 1 9 1436 2702 112 24 96.980957 one-fifth5 1 12 1 1 10 1558 2703 28 23 96.880196 of5 1 12 1 1 11 1592 2710 45 17 96.880196 ones 1 12 1 1 12 1646 2708 96 26 96.969604 percent5 1 12 1 1 13 1750 2704 28 23 96.928123 of5 1 12 1 1 14 1785 2711 14 17 96.663170 a5 1 12 1 1 15 1808 2704 146 30 87.656403 university's4 1 12 1 2 0 616 2746 1338 33 -1 5 1 12 1 2 1 616 2746 54 23 96.740425 totals 1 12 1 2 2 679 2746 173 30 96.740425 expenditures,5 1 12 1 2 3 861 2746 45 24 96.914215 ands 1 12 1 2 4 915 2746 71 24 96.941971 about5 1 12 1 2 5 994 2746 42 24 96.919083 5%5 1 12 1 2 6 1045 2746 28 24 96.592567 of5 1 12 1 2 7 1081 2754 13 16 96.592567 a5 1 12 1 2 8 1102 2746 127 31 96.050552 university5 1 12 1 2 9 1239 2747 94 23 93.239708 athletic5 1 12 1 2 10 1342 2748 169 29 90.924164 department’s5 1 12 1 2 11 1519 2749 165 30 96.615692 expenditures5 1 12 1 2 12 1701 2749 95 23 96.960526 Exhibits 1 12 1 2 13 1805 2749 21 23 96.888878 A5 1 12 1 2 14 1837 2753 23 19 93.260162 to5 1 12 1 2 15 1869 2749 85 24 88.643929 CFA’s4 1 12 1 3 0 616 2787 1339 34 -1 5 1 12 1 3 1 616 2787 75 31 96.322914 Reply5 1 12 1 3 2 700 2787 57 23 96.959091 filed5 1 12 1 3 3 766 2788 57 30 96.839439 May5 1 12 1 3 4 836 2788 35 27 96.518082 17,5 1 12 1 3 5 885 2788 66 24 95.174553 1991.5 1 12 1 3 6 967 2788 62 24 95.770622 CFA5 1 12 1 3 7 1039 2788 58 24 95.770622 does5 1 12 1 3 8 1106 2793 40 19 96.940788 not5 1 12 1 3 9 1154 2795 45 23 96.928833 pays 1 12 1 3 10 1209 2788 38 24 97.002220 thes 1 12 1 3 11 1256 2788 124 24 96.986511 televisions 1 12 1 3 12 1390 2796 114 16 96.970116 revenues5 1 12 1 3 13 1513 2790 96 30 96.974747 directly5 1 12 1 3 14 1619 2794 24 19 96.974747 to5 1 12 1 3 15 1651 2797 46 23 95.726059 any5 1 12 1 3 16 1706 2790 94 24 96.916855 athletic5 1 12 1 3 17 1809 2791 146 30 96.314270 department4 1 12 1 4 0 616 2828 1338 32 -1 5 1 12 1 4 1 616 2828 28 23 96.726250 of5 1 12 1 4 2 656 2828 28 24 96.559181 its5 1 12 1 4 3 698 2829 126 23 96.691940 members.5 1 12 1 4 4 850 2829 19 23 92.869774 It5 1 12 1 4 5 882 2829 79 23 92.591705 remits5 1 12 1 4 6 975 2829 38 23 96.991035 thes 1 12 1 4 7 1026 2836 115 16 95.924820 revenues5 1 12 1 4 8 1155 2834 23 18 96.218987 to5 1 12 1 4 9 1191 2830 39 23 96.218987 thes 1 12 1 4 10 1243 2830 94 30 96.860977 colleges 1 12 1 4 11 1350 2837 26 16 96.774292 or5 1 12 1 4 12 1389 2830 138 30 96.827545 university,5 1 12 1 4 13 1540 2838 28 16 96.876427 or5 1 12 1 4 14 1580 2831 38 23 97.009575 for5 1 12 1 4 15 1630 2839 67 15 96.709709 some5 1 12 1 4 16 1712 2832 153 26 96.946869 institutions,5 1 12 1 4 17 1879 2836 23 18 96.877213 to5 1 12 1 4 18 1916 2832 38 23 96.742973 thea 1 12 1 5 0 616 2869 1337 33 -1 5 1 12 1 5 1 616 2869 103 32 96.272713 regional5 1 12 1 5 2 729 2869 95 24 96.272713 athletic5 1 12 1 5 3 834 2869 143 25 96.505501 conferences 1 12 1 5 4 986 2870 29 24 96.713860 of5 1 12 1 5 5 1023 2870 78 24 96.981674 which5 1 12 1 5 6 1111 2871 40 23 96.728485 thes 1 12 1 5 7 1161 2871 107 24 96.254997 members 1 12 1 5 8 1277 2871 20 24 96.402039 is5 1 12 1 5 9 1307 2878 14 17 96.402039 a5 1 12 1 5 10 1330 2872 148 30 96.508545 participant,5 1 12 1 5 11 1489 2872 77 24 96.687401 which5 1 12 1 5 12 1578 2873 54 23 96.687401 then5 1 12 1 5 13 1643 2873 136 24 96.818352 distributes5 1 12 1 5 14 1790 2873 38 23 96.880890 thes 1 12 1 5 15 1839 2880 114 17 96.791061 revenues4 1 12 1 6 0 616 2912 851 31 -1 5 1 12 1 6 1 616 2916 24 19 96.842888 to5 1 12 1 6 2 649 2912 38 23 93.298309 thes 1 12 1 6 3 697 2912 166 23 91.376320 conference’s5 1 12 1 6 4 875 2912 126 27 96.262650 members,5 1 12 1 6 5 1011 2912 62 23 96.410927 CFA5 1 12 1 6 6 1084 2913 151 23 96.396378 Submissions 1 12 1 6 7 1246 2913 29 22 96.396378 of5 1 12 1 6 8 1282 2913 54 30 96.914833 July5 1 12 1 6 9 1346 2913 39 27 93.938675 25,5 1 12 1 6 10 1398 2914 69 23 93.938675 1991. COLLEGE FOOTBALL ASSOCIATION, ET AL. 983 971 Initial Decision 94 FTC 701, 989-990 (1979), where the Commission distinguished Community Blood Bank. The Commission explained that the respondents’ inability to quality under Section 501(c)(3) set them apart from the KCAHA. The Commission stated that failure to qualify under Section 501(c)(3) did not lead inexorably to the conclusion that there was jurisdiction:

Of course, failure to qualify as tax exempt under Section 501(c)(3) does not by itself necessarily mean that a respondent is within the reach of Section 4 of the FTC Act, since, as we have discussed supra, the pecuniary benefit of its activities to its members must constitute a substantial part of its activities under Section 4. 94 FTC at 990 and n.17. Thus, while an IRS determination that an organization does not qualify as tax exempt under Section 501(c)(3) necessitates further inquiry under the Commission’s “substantiality” test, an IRS determination “that a respondent is or is not organized and operated exclusively for eleemosynary purposes should not be disregarded.” 94 FTC at 990.”

4. Distribution of funds to nonprofit members The money CFA pays to its members does not represent a distribution of profits. A distribution of funds by one nonprofit organization to another nonprofit organization is permitted, National Foundation v. United States, 13 Cl.Ct. 486, 492 (Cl.Ct. 1987). Since CFA’s members are nonprofit organizations, CFA may distribute revenues to them without losing its own nonprofit status. II. FINDINGS OF FACT Complaint counsel have failed to raise disputed issues of fact that could support a finding of jurisdiction. All of the facts placed in issue by complaint counsel concern whether the CFA is involved in The importance of tax exempt status in determining whether an organization is nonprofit is also reflected in other cases. In Ohio Christian College, 80 FTC 815, 848 (1972), in taking jurisdiction over an educational corporation the Commission relied upon a similar case where the IRS “found that because of the lax financial dealings with the founders of the school, it was not in fact an exempt corporation.” 80 FTC at 848. In Community Blood Bank, the court found that the corporations were organized under Missouri's not-for-profit corporation law, that 43 of 45 of the corporate respondents, members were also organized under nonprofit corporation laws or were instrumentalities of federal, state, county or local governments, and that: “All satisfied the requirements of the federal law entitling them to exemption from federal income tax liability.” 405 F.2d at 1020, n.16. Initial Decision LI7F.T.C.

“commercial” activity.” However, this question bears no relevance to the jurisdictional test set out in the Federal Trade Commission Act. The factual disputes alleged by complaint counsel are, as a matter of law, not material to the jurisdictional issue. CFA’s motion for summary decision is supported by evidence demonstrating that neither it nor its members operate for profit.”” The facts relating to the lack of subject matter jurisdiction in this case are genuinely undisputed, or are immaterial to the issue. Specifically, there is no genuine dispute that:

(1) CFA is organized and operated as a nonprofit association; (2) CFA’s tax exempt status under Section 501(c)(3) has been recognized by the IRS. Admitted, Opposition Brief filed Apr. 22, 1991 at p. 31, paragraph 2;

(3) CFA’s directors and officers are not paid, and CFA’s staff, including its executive director, are paid salaries to compensate for services rendered;””

26 An order on March 28, 1991, directed that complaint counsel set forth “‘a statement of facts as to which, it is contended, there exists a genuine issue necessary to be litigated.” Order re Summary Decision Motions. Complaint counsel replied that the “CFA’s organizational objectives include acting in the economic interests of the big-time football programs of its members,” that the “CFA . . . is essentially a commercial enterprise,” that the “CFA has at least one paid official,” that “most of the members with [the] CFA are state instrumentalities,” that “[t]television football is the major CFA function,” that CFA members use revenues received from the CFA “to enhance the athletic programs of [the] CFA members,” and that “Mr. Neinas does not explain [in his affidavit) the destination of . . . $2,955,500 that [the] CFA received from its television contracts.” Opposition at 31-33. Even if true, these allegations would not support jurisdiction. CFA provided additional support in a Supplemental Brief, with accompanying exhibits, filed on April 5, 1991. Appendix A to that Brief demonstrates that the CFA does not retain net earnings from year-to-year and does not distribute earnings to any individual or for-profit organization. The appendices to CFA’s Motion for Summary Decision show that no member of the CFA is a for-profit organization. :

Neinas Tr. (Tab 2) attached to Appendix to CFA’s Motion for Summary Decision, at 7-8; Tab 3 paragraphs 2 and 3; Tab 4, p. | Art. 1.

Money from the sale of television rights is used to sustain college football programs and promote amateur athletic competition, a recognized public purpose for nonprofit status. Complaint counsel rely on the affidavit of a professor at Indiana University who asserts that CFA is a commercial enterprise. The affidavit does not raise a factual dispute. CFA agrees that the sale of its members’ television rights is a business activity. That, however, is not relevant to the question of whether the activity is carried on for profit. :

“ Tab 73, Neinas Aff’d., paragraph 2. Complaint counsel asserts that the payment of a salary to CFA’s Executive Director, Charles M. Neinas, is the payment of revenues to “officer.” Opposition Brief at p. 8, n.7. The officers of the CFA are described in its Articles of Association, Tab. 4. p. 4, Art. V, paragraph 4. They consist of a chairman and a secretary/treasurer, neither of whom is paid a salary. Tab. 73, Neinas Affid., paragraph 2. Mr. Neinas is employed as executive director of the CFA, not as an officer.. /d., paragraphs 1 and 2. Moreover, there is no prohibition of a nonprofit organization paying reasonable compensation for services rendered by an officer. E.g., 1 Fletcher Cyc. Corp. Section 68.05 ‘at p.919. CFA’s articles accordingly permit such payments. Tab 4, P.6, Art. IX, paragraph |. What is prohibited is net earnings inuring to private interests. COLLEGE FOOTBALL ASSOCIATION, ET AL. 985 971 Initial Decision (4) CFA’s audited financial statements show that the proportion of cumulative television revenues used to pay salaries and employee benefits has been a fraction of 1%;*° (5) CFA’s members all are organized under applicable nonprofit laws or as state or federal instrumentalities;*' (6) Television football has become a major function of CFA, enhancing the quality of its members football programs and sustaining viewer interest in such programs; 2 (7) The television revenues earned by the sale of CFA’s members, football telecasting rights are used by the institutions for their proper non-profit purposes, including sustaining their athletic programs;”

(8) CFA negotiates and signs the television contracts, receives the revenues, and makes payments to the membership. All CFA members receive “participation pool” payments and those which are actually televised receive appearance or rights fees. (Admitted, Opposition Response Brief, p. 33, paragraph 8.); (9) CFA is obligated to pay the rights fees within 90 days after a game has been played, and makes the participation payments in June following the football season in which the games are played, investing the funds in the interim in conservative investments. (Admitted, Opposition Response Brief, p. 33, paragraph 9.); (10) The earnings on investments of television revenues are used to pay CFA’s administrative expenses for the television plan; CFA attempts to pay all of the television revenues to its members and is largely successful in doing so; and*™* 30 The salaries and benefits are included in the audited financial statements, CFA’s Supplemental Brief, Ex. A, within the itemization column for “expenses.” It is undisputed that all of CFA’s members are tax exempt. As to whether CFA’s members are nonprofit, the dispute is not factual (complaint counsel’s Opposition, filed Apr. 22, 1991 at pp. 31-32, paragraph 5). The state institutions are promoting the same public interests as the private ones, and many have obtained Section 501(c)(3) status, solely as a convenience. See IRS letters under Tabs 29, 32, 34, 40, 43, 51, 59, 60, 61, 63, 64 and 70. Donations to the state institutions for their public purpose functions are deductible as “charitable contribution” under IRC Section 170(c). See IRS letters under Tabs 24, 25, 27, 29, 30, 32, 34, 36, 37, 56, 58, 64, and 65. 32 Tab 2, Neinas Tr. at 25-29, 32, 175-79, 216-17; Ex. K to complaint counsel’s Opposition, at p. 215.

33 Tab 2, Neinas Tr. at 214-15. Television revenues enhance the educational programs of CFA members as well as their amateur athletic competitors, regardless of their commercial source, supra. 34 Neinas Tr. at 182-83. CFA has distributed 98% of the revenues remaining after production costs for its previous contracts with CBS and ESPN. Tab 73, Neinas Aff'd., paragraph 4. The remaining 2% is held in escrow until CFA’s final expenses are determined; none of the net revenues are retained by the CFA. Tab 73, Neinas Aff'd., paragraph 4. Initial Decision 117 F.T.C.

(11) Of the revenues obtained under the television contracts, CFA retains only that portion of gross revenues necessary to pay its administrative expenses relating to administration of the television plan and contracts.*° What quarrels exist or are purported to exist with respect to these basic facts are not material to resolution of the jurisdictional issue. III. CONCLUSIONS OF LAW 1. Section 5(a)(2) of the FTC Act limits the jurisdiction of the Commission to “persons, partnerships, or corporations,” 15 U.S.C. 45(a)(2).

2. Section 4 of the FTC Act defines “corporation” for purposes of Section 5(a)(2) to include an association “which is organized to carry on business for its own profit or that of its members.” 15 U.S.C. 44, 3. CFA is organized and operated as a nonprofit association under 26 U.S.C. 501(c)(3), Internal Revenue Code (“IRC”). CFA’s tax-exempt status under IRC Section 501(c)(3) has been recognized by the Internal Revenue Service (“IRS”).

4. A nonprofit organization is exempt under Section 4 and Section 5 of the FTC Act unless the organization is only ostensibly organized not-for-profit, and is actually used as a vehicle to obtain profit. Community Blood Bank of Kansas City Area, Inc. v. FTC, 405 F.2d 1011, 1017 (8th Cir. 1969). Cf FTC v. National Commission on Egg Nutrition, 517 F.2d 485, 488 (7th Cir. 1975), cert. denied, 426 U.S. 919, 49 L.Ed.2d 372 (1976).

5. “Profit” within the meaning of Section 4 of the FTC Act does not include the use by a nonprofit organization of net revenues for its own self-perpetuation or expansion. Community Blood Bank, 405 F.2d at 1016.

6. A determination by the IRS, that a respondent organized and operated for purposes recognized as conferring nonprofitstatus under Section 501(c)(3) should not be disregarded. American Medical Assn, et al., 94 FTC 701, 989-990 (1979), aff'd sub. nom., American Medical Assn v. Federal Trade Commission, 638 F.2d 443 (2d Cir. 1980), aff'd by an equally divided court, 455 U.S. 676, 71 L.Ed.2d 546 (1982).

35 Tab 73, Neinas Aff’d., paragraphs 3-5; Tab 2, Neinas Tr. at 182-83. COLLEGE FOOTBALL ASSOCIATION, ET AL. 987 971 Initial Decision 7. The television contracts here promote the purposes for which CPA has been conferred tax-exempt status under IRC Section 501(c)(3), including the fostering of national amateur sports competition. Rev.Rul. 80-296, 1980-2 C.B. 195; Rev.Rul. 80-295, 1980-2 C.B. 194; Rev.Rul. 80-294, 1980-2 C.B. 187. (Exhibits B-D to CFA’s Supplemental Brief filed Apr. 5, 1991.) 8. CPA does not carry on business for its own profit within the meaning of Section 4 of the FTC Act.

9. CFA’s members are comprised of (a) federal instrumentalities, (b) state public educational institutions, and (c) private nonprofit educational institutions.

10. Federal instrumentalities are nonprofit, tax-exempt organizations. IRC, Section 115(2). State educational institutions are also nonprofit, tax-exempt organizations. IRC Section 115(1). 11. CFA’s members which are private organizations are all nonprofit, tax-exempt organizations under Section 501(c)(3). 12. A nonprofit organization may distribute revenues to and for the benefit of other nonprofit organizations while retaining its nonprofit status. Rev.Rul. 67-149, 1967-1 C.B. 133; National Foundation, Inc. v. United States, 13 Cl.Ct. 486 (1987). 13. That a nonprofit organization has as members “persons” within the meaning of Section 5 of the FTC Act is insufficient to confer jurisdiction over the organization under Section 4 of the FTC Act. In Community Blood Bank, of the 43 member hospitals of KCAHA, 12 were instrumentalities of federal, state, or local governments and 2 were organized as proprietary corporations. 70 FTC at 767.

14. CFA is not organized and does not carry on business for the profit of its members, and has no members which are organized or operated for-profit.

ORDER College Football Association is a nonprofit association which does not carry on business for its own profit or that of its members, within the meaning of Section 4 of the FTC Act, 15 U.S.C. 44. The complaint against the CFA must therefore be dismissed for lack of jurisdiction by the Commission over the CFA. Initial Decision 117 F.T.C.

ORDER DISMISSING CAPITAL CITIES/ABC, INC.

This case involves the sale of college football telecast rights by College Football Association to Capital Cities/ABC, Inc. An order has been entered dismissing College Football Association on the grounds that it is not organized for its own profit or that of its members, and therefore is not subject to Commission jurisdiction. Respondent Capital Cities also now seeks dismissal. Where public rights are involved one party to a contract may be sued without joining the other. Pepsi Co., Inc. v. FTC, 472 F.2d 179 (2d Cir. 1972), cert. denied, 414 U.S. 876 (1973). Here, however, the restriction on the Commission’s power to proceed against CFA should not be circumvented by seeking to enjoin the other party to the arrangement.’ A jurisdictional limitation should not be attacked collaterally:

the distinction made in the Act between corporations acting for profit and nonprofit corporations would be erased if all the Commission had to do, in order to obtain jurisdiction, was to name the officers, directors and other personnel of a nonprofit corporation as the respondents.’ Complaint counsel argues that “there is a separate and distinct monopolization count against Capital Cities for buying multiple college football telecast packages.” Complaint counsel’s nonbinding statement filed Oct. 26, 1990, briefly refers to a theory of violation by Capital Cities involving its aggregating exclusive college football telecast “packages” and gaining anticompetitive advantage over competing telecasters.* The complaint, however, lacks allegations of monopoly power or purpose, or any reference to a theory of violation by Capital Cities separate from the arrangement with CFA. The complaint must be dismissed, without prejudice, to allow the Commission to consider whether to proceed against Capital Cities } Cf. Community Blood Bank of Kansas City Area, Inc. v. FTC, 405 F.2d 1011, 1022 (8th Cir. 1969) (“the Commission is not entitled to acquire jurisdiction otherwise lacking over the nonprofit by indirection, that is, by enforcing its order against the pathologists, administrators or key employees of the corporation”); Ohio Christian College, 80 FTC 815, 844-45 (1972) (‘‘to circumvent a legislative restriction of the Commission’s authority over certain classes of companies by issuing orders against all individual officers, agents, directors or trustees would be contrary to the intent of Congress”). Champaign-Urbana News Agency, Inc. v. J.L. Cummins News Co., Inc., 632 F.2d 680, 692-93 (7th Cir. 1980) 3 Community Blood Bank, 405 F.2d at 1021 (quoting from Commissioner Elman’s dissenting opinion).

This theory is on page 27 of the nonbinding statement and is attached as an appendix. COLLEGE FOOTBALL ASSOCIATION, ET AL. 989 971 Opinion alone. Capital Records Distributing Corp., 58 FTC 1170, 1173 (1961).

APPENDIX This is page 27 of the nonbinding statement. telecasters, enlarge its own college football audience, and increase the price of advertising during college football.”

The network and time period exclusivity provisions obviously prevent other telecasters from competing with ABC and ESPN for viewers and advertising revenues.*® Additionally, by purchasing the exclusive CFA package (and adding it to the exclusive Big Ten/Pac-10 package it already held), Capital Cities recognized that it would be able to reduce the number of college football network exposures, thus decreasing the available time for advertising and giving it the ability to charge college football advertisers a significant premium.” OPINION OF THE COMMISSION BY STEIGER, Chairman:

I. INTRODUCTION On September 5, 1990, the Federal Trade Commission issued an administrative complaint alleging, inter alia, that respondents College Football Association (“CFA”) and Capital Cities/ABC, Inc. (“Capital Cities”) had unreasonably restrained competition in the marketing of college football telecasts and among telecasters of college football games. Administrative litigation ensued. Both CFA and Capital Cities filed motions to dismiss for lack of jurisdiction The evidence will show that the benefits that Capital Cities receives from its participation in the exclusive CFA agreements is not unintended: Capital Cities has continually sought college football exclusives for both ABC and ESPN. This conduct -- Capital Cities’ seeking (and obtaining) the collective agreement of CFA schools to refuse to deal with other networks and to restrict their dealings with all other networks and to restrict their dealings with all other telecasters -- amounts to the activities of a boycott ringleader. Klor’s, supra note 36 (one retailer received agreements from multiple suppliers that they would boycott a competing retailer). . 3 Moreover, the restrictions are beneficial to ABC in that, if the network's affiliates wish to show a CFA game at the time ABC is telecasting a CFA game, they must show the ABC game because no competing CFA game may be telecast during that period. Affiliates are thus deterred from preempting the network programming.

Indeed, by aggregating the exclusive CFA package with previously acquired packages, Capital Cities can gain an anticompetitive advantage over competing telecasters. See Standard Oil Co. v. United States, 337 U.S. 293 (1949); Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291, 1302-03 (9th cir. 1982) (a single innocuous contract may belong to a pattern of contractual relations that significantlv restrain trade in the relevant market). cert. denied. 459 U.S. 1009 (1982). Opinion 117 F.T.C.

based on the assertion that CFA is a nonprofit association which does not carry on business for its own profit or that of its members. After oral argument, on November 13, 1990, Administrative Law Judge James P. Timony denied both motions. PC Tr. 110-11.' In a subsequent written order, the Administrative Law Judge explained that CFA’s motion raised a “close question” that could not be decided “in the absence of a record.” Order re CFA’s Motion to Dismiss at 1, 3 (December 27, 1990).

Following nine months of discovery,? CFA and ABC filed renewed motions for summary decision and/or to dismiss based on CFA’s nonprofit status. On July 29, 1991, the Administrative Law Judge issued an Initial Decision finding that the Commission lacked jurisdiction over CFA and ordered that the complaint against CFA be dismissed without prejudice. On that same date, Judge Timony further ordered that the complaint against Capital Cities be dismissed without prejudice, to allow the Commission to consider whether to proceed against Capital Cities alone. Complaint counsel have appealed from these orders. For the reasons set forth below, the complaint as to CFA is dismissed for lack of jurisdiction. Under the circumstances of this litigation, we find it in the public interest to dismiss the complaint against CFA with prejudice, and the complaint as to Capital Cities is dismissed without prejudice. As discussed more fully infra in Section III, respondent CFA is an unincorporated association of 66 colleges and universities. It is formally organized under its articles as a nonprofit association. It is treated as exempt from federal income taxation under Internal Revenue Code Section 501(c)(3), 26 U.S.C. 501(c)(3). All of CFA’s members are organized under state nonprofit laws or as state or federal instrumentalities. CFA negotiates and signs contracts for televising college football games involving its members. It distrib- The following abbreviations are used in this opinion: ID Initial Decision IDF Initial Decision finding number PC Tr. Transcript of prehearing conference (November 13, 1990) OA Tr. Transcript of Commission oral argument (January 30, 1992) CCAB Complaint Counsel's Appeal Brief CFAB Brief of Appellee College Football Association CCRB Complaint Counsel’s Reply Brief Depositions of 41 witnesses were conducted and over 4,000 pages of transcripts--in addition to interrogatory responses and document productions--were generated. Although discovery was substantial, it was not complete at the time of the Initial Decision. COLLEGE FOOTBALL ASSOCIATION, ET AL. 991 971 Opinion utes the revenues derived from these contracts to its members after deducting a portion to cover its administrative expenses. Respondent Capital Cities owns the ABC Television Network and 80% of ESPN, a national cable television network. Answer of Capital Cities/ABC, Inc. (October 19, 1990) (admitting allegations in paragraph five of complaint). ABC and ESPN have entered contracts with CFA to telecast certain games of its members during the 1991 through 1995 college football seasons. Jd. (admitting certain allegations in paragraph nine of complaint); Appendix to CFA’s Motion for Summary Decision (March 1991), Tab 73, Neinas Affidavit at paragraph 3.

The Initial Decision concludes that CFA is not subject to the Commission’s jurisdiction because it is not organized and does not carry on business either for its own profit or for the profit of its members. Complaint counsel challenge both of these conclusions. They argue that CFA is essentially a commercial entity and that the Administrative Law Judge erroneously assessed CFA’s status by formulating a faulty legal standard, according undue deference to the determinations of the Internal Revenue Service, and failing to resolve factual disputes in favor of complaint counsel, as required by summary decision law. They also argue that under governing precedents CFA is organized for the profit of its members regardless of whether those members are within the Commission’s jurisdiction. Moreover, complaint counsel contend that the Commission’s jurisdiction over approximately three-fourths of CFA’s members (the state colleges and universities) as “persons” under the Federal Trade Commission Act provides a further basis for the Commission’s jurisdiction over CFA. We address these contentions below.’ The parties below moved for summary decision, and the case was presented, briefed, and argued on that basis. Federal courts have held that the standard for summary judgment may be appropriately used in deciding a jurisdictional issue, once there has been some discov- 3 The Administrative Law Judge also determined that the complaint against Capital Cities should be dismissed without prejudice to5 1 4 1 2 6 1014 2557 70 23 96.976120 allows 1 4 1 2 7 1093 2557 38 23 96.647110 thes 1 4 1 2 8 1138 2556 164 24 96.745384 Commissions 1 4 1 2 9 1311 2560 23 19 96.944016 to5 1 4 1 2 10 1342 2556 109 24 96.925995 considers 1 4 1 2 11 1459 2556 104 23 96.921944 whether5 1 4 1 2 12 1571 2560 24 18 96.959610 to5 1 4 1 2 13 1603 2556 101 30 96.608536 proceeds 1 4 1 2 14 1713 2555 89 30 96.418625 against5 1 4 1 2 15 1810 2554 93 30 96.537575 Capital4 1 4 1 3 0 565 2596 1339 33 -1 5 1 4 1 3 1 565 2598 73 24 96.879745 Cities5 1 4 1 3 2 648 2598 88 24 91.300652 alone. Order Dismissing Capital Cities/ABC, Inc. at 2 July 29, 1991). Capital Cities argues that the Administrative Law Judge's order should be affirmed but concedes that the Commission is free5 1 4 1 4 16 1879 2641 25 19 96.972557 to4 1 4 1 5 0 565 2678 1338 34 -1 5 1 4 1 5 1 565 2680 87 24 95.812271 initiates 1 4 1 5 2 661 2688 14 16 96.315765 a5 1 4 1 5 3 683 2688 54 17 96.315765 cases 1 4 1 5 4 748 2681 74 31 96.755386 solely5 1 4 1 5 5 832 2680 91 31 95.663017 against5 1 4 1 5 6 932 2680 91 31 95.663017 Capital5 1 4 1 5 7 1033 2680 75 24 96.993286 Cities5 1 4 1 5 8 1117 2688 31 16 95.544655 on5 1 4 1 5 9 1159 2680 37 24 95.367310 thes 1 4 1 5 10 1207 2680 63 24 95.367310 basis5 1 4 1 5 11 1279 2680 28 24 96.991074 of5 1 4 1 5 12 1315 2687 29 17 96.956161 an5 1 4 1 5 13 1356 2680 167 30 96.694626 investigations 1 4 1 5 14 1535 2680 48 23 96.932098 that5 1 4 1 5 15 1594 2680 19 23 96.319122 is5 1 4 1 5 16 1624 2680 100 23 96.319122 focused5 1 4 1 5 17 1735 2686 63 24 96.672630 upon5 1 4 1 5 18 1808 2678 95 31 96.499573 Capital4 1 4 1 6 0 565 2720 1338 32 -1 5 1 4 1 6 1 565 2722 75 24 96.641251 Cities5 1 4 1 6 2 656 2723 46 23 96.833542 ands 1 4 1 6 3 718 2723 124 23 96.662682 addresses5 1 4 1 6 4 859 2722 38 24 96.597458 thes 1 4 1 6 5 913 2729 127 23 96.718872 necessary5 1 4 1 6 6 1056 2722 116 24 96.322136 elements5 1 4 1 6 7 1189 2722 23 23 96.378532 in5 1 4 1 6 8 1230 2722 58 24 96.541008 such5 1 4 1 6 9 1304 2729 13 16 96.923424 a5 1 4 1 6 10 1333 2728 62 20 96.455261 case,5 1 4 1 6 11 1412 2722 47 23 96.009842 ands 1 4 1 6 12 1475 2721 60 24 96.009842 after5 1 4 1 6 13 1550 2721 93 31 96.606071 Capital5 1 4 1 6 14 1660 2721 76 24 96.914085 Cities5 1 4 1 6 15 1753 2721 41 23 96.521935 has5 1 4 1 6 16 1811 2720 46 23 96.878639 had5 1 4 1 6 17 1873 2727 30 16 96.933250 an4 1 4 1 7 0 564 2761 1338 33 -1 5 1 4 1 7 1 564 2764 154 30 95.833939 opportunity5 1 4 1 7 2 730 2768 24 19 96.542984 to5 1 4 1 7 3 766 2764 97 23 96.708649 address5 1 4 1 7 4 875 2764 38 23 96.864433 thes 1 4 1 7 5 925 2764 77 23 97.004089 issues5 1 4 1 7 6 1015 2764 47 22 96.634079 that5 1 4 1 7 7 1075 2764 81 22 96.555824 would5 1 4 1 7 8 1168 2764 30 22 96.796051 be5 1 4 1 7 9 1210 2763 76 23 96.774376 raised5 1 4 1 7 10 1299 2763 30 30 96.526917 by5 1 4 1 7 11 1342 2763 58 23 96.517059 such5 1 4 1 7 12 1413 2770 13 16 94.661774 a5 1 4 1 7 13 1437 2763 77 23 72.384598 case. Answering Brief of Capital Cities/ABC, Inc. at 53-54. In view of its disposition of the jurisdictional arguments raised with respect to CFA, the Commission has determined to dismiss the complaint against Capital Cities without prejudice.

Opinion 117 F.T.C.

ery. Ball v. Metallurgie Hoboken-Overpelt. S.A., 902 F.2d 194, 196- 98 (2d Cir.), cert. denied, 498 U.S. 854 (1990). Thus, the Commission’s analogous rules for summary decision will be used in deciding this appeal.

Il. THE LEGAL STANDARD The jurisdictional inquiry is governed by two sections of the Federal Trade Commission Act. Section 5 of that Act, as amended, 15 U.S.C. 45, provides:

The Commission is empowered and directed to prevent persons, partnerships, or corporations . . . from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce. The term “corporation” is defined in Section 4, as amended, 15 U.S.C. 44:

“Corporation” shall be deemed to include any company, trust, so-called Massachusetts trust, or association, incorporated or unincorporated, which is organized to carry on business for its own profit or that of its members, and has shares of capital or capital stock or certificates of interest, and any company, trust, so-called Massachusetts trust, or association, incorporated or unincorporated, without shares of capital or capital stock or certificates of interest, except partnerships, which is organized to carry on business for its own profit or that of its members. The statute does not define the phrase “organized to carry on business for... profit.” The legislative history provides no direct guidance. The Initial Decision defines this phrase with a single-pronged test based on the destination of the income. It finds that CFA’s income is never distributed to private individuals or for-profit corporations and treats this as determinative. Thus, the Initial Decision states: Nor does an organization’s nonprofit status depend upon the source of its revenues. The test instead is whether the organization’s funds are properly used for recognized public purposes, rather than distributed to private persons or for-profit companies.

ID at 4. It elaborates:

an association is “organized to carry on business for . . . profit” only if it can distribute the excess of revenue over expenses to shareholders or other private interests.

Id. at 7 (emphasis in original).

COLLEGE FOOTBALL ASSOCIATION, ET AL. 993 971 Opinion We find the Initial Decision’s definition too narrow. While we agree that the distribution of funds to private persons or for- profit companies as opposed to their use for “recognized public purposes” is one basis for finding an entity to be “organized to carry on business for... profit,” we conclude that the source of the income provides another basis for such a finding. At least when a corporation has entered the mainstream of commercial activity,’ an adequate nexus is required between its activities and its alleged public purposes if the corporation is to qualify for Section 4's not-for-profit exemption.” This broader, two-pronged definition looks to the totality of the circumstances. A corporation both engages in operations and reaps the fruits of those activities. The Initial Decision focuses solely on the distribution of the latter, disregarding the corporation’s activities themselves. Such a limited focus surely is unjustified from the perspective of antitrust enforcement: the role of a corporation in the competitive process appears as closely linked to the character of its activities as to the nature of the recipients of its revenues. Nor does such limited focus appear justified from the perspective of the allegedly not-for-profit corporation: as discussed below in connection with the Internal Revenue Code, when Congress has clearly delimited the circumstances for according advantages to not-for-profit entities, it has mandated attention to the relationship between their activities and their professed public purposes.

The two-pronged test is suggested first by the case law. The primary judicial analysis of Section 4’s for-profit standard is presented in the opinion of the United States Court of Appeals for the Eighth Circuit in Community Blood Bank of the Kansas City Area, Inc. v. FTC, 405 F.2d 1011 (8th Cir. 1969). That court rejected a Commission ruling that a corporation lacking capital stock or shares of capital is organized to carry on business for its own profit when it receives fees, prices or dues and is not prohibited by its charter from We do not deal here with the situation where an organization engages in occasional or isolated ventures outside the scope of its public purposes. Rather, the inquiry before us involves evaluation of CFA’s systematic and pervasive operations in marketing college football telecast rights. 5 Although the definition of corporation in Section 4 literally focuses on how a corporation is “organized,” the standard has been interpreted consistently to encompass considerations involving an entity’s operation as well as its formal organizational status. See, e.g., Community Blood Bank of the Kansas City Area, Inc. v. FTC, 405 F.2d 1011, 1018-19 (8th Cir. 1969) (“we do not mean to hold or even suggest that the charter of a corporation and its statutory source are alone controlling the reality of their being in law and in fact charitable organizations places them beyond the reach of the Act”). CFA concedes that “the test of FTC jurisdiction is whether the defendant is organized and operated as a not-for-profit corporation as that term is commonly understood.” CFAB at !0 (emphasis added). Opinion HI7E.T.C.

devoting any excess of its income over expenditures to its own use, i.é., for its own self-perpetuation or expansion. The court concluded that the test to be applied in determining whether a non-stock corporation, no less than a corporation having capital stock, is exempt “is whether it engages in business for profit within the traditional and generally accepted meaning of that word.” Jd. at 1017 (emphasis in original). The court then expressly held:

[U]nder Section 4 the Commission lacks jurisdiction over nonprofit corporations without shares of capital which are organized for and actually engaged in business for only charitable purposes, and do not derive any “profit” for themselves or their members within the meaning of the word “profit” as attributed to corporations having shares of capital.

Id. at 1022 (emphasis added). The court thus established a twopronged test looking both to the source of the income, i.e., to whether the corporation is “organized for and actually engaged in business for only charitable purposes,” and to the destination of the income, i.e., to whether either the corporation or its members derive a profit. A similar two-pronged standard is clearly articulated in the analogous body of federal law which governs treatment of not-forprofit organizations under the Internal Revenue Code. The Commission has long recognized that “[w]while the terms employed in other Statutes and the interpretation adopted by other agencies are not controlling, the treatment of exemptions for nonprofit corporations by other branches of the Federal Government is helpful." Ohio Christian College, 80 FTC 815, 848 (1972). See American Medical Assn, 94 FTC 701, 990 (1979) (finding an entity’s tax-exempt status “certainly one factor to be considered” and observing that “a determination by another Federal agency that a respondent is or is not organized and operated exclusively for eleemosynary purposes should not be disregarded’’), enforced as modified, 638 F.2d 443 (2nd Cir. 1980), affd by an equally divided court, 455 U.S. 676 (1982) (“AMA”). The Internal Revenue Code delineates the circumstances under which Congress, at least in one context, has been willing to exempt not-for-profit organizations from the burdens of federal laws. Section 501(c)(3) of the Internal Revenue Code provides an exemption from income taxation for;

{[c]orporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, COLLEGE FOOTBALL ASSOCIATION, ET AL. 995 971 Opinion literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual... .

26 U.S.C. 501(c)(3). The two-pronged test is clear: an entity qualifies for tax-exempt status if (1) it is “organized and operated exclusively” for one of the enumerated exempt purposes and (2) no part of its net earnings “‘inures to the benefit of any private shareholder or individual.” The first standard focuses on the source of the income, examining the organization for an adequate nexus between its activities and exempt purposes.° The second standard focuses on the destination of the income, ensuring that no earnings are distributed for private gain.’ The courts struggled in applying the not-for-profit exemption to entities operated like CFA, which engage in commercial activities but “feed” their net earnings to exempt institutions. Initially, the courts split on the taxability of such entities.» Appellate courts in some circuits applied a destination-of-income test, exempting a “feeder organization” from taxation if its income was distributed exclusively for charitable purposes even though the organization’s primary or sole activity consisted of purely commercial operations. See, e.g., C.F. Mueller Co. v. Commissioner, 190 F.2d 120 (3d Cir. 1951); Roche’s Beach, Inc. v. Commissioner, 96 F.2d 776 (2d Cir. 1938). Appellate courts in other circuits looked to the source of the income, finding that when the activities in which the feeder organization itself engaged were of a non-exempt nature, the feeder organization was subject to taxation. See, e.g., Ralph H. Eaton Found. v. Commissioner, 219 F.2d 527 (9th Cir. 1955); United States v. Community 6 “An organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in section 501(c)(3).” 26 CFR 1.501(c)(3)-I(c)(1) (emphasis in original). This bifurcation was already a feature of federal tax law in 1913, when the income tax was imposed by the same Congress which the following year enacted the Federal Trade Commission Act. See Tariff Act of October 3, 1913, Section II.G. (a) (exempting from income taxation corporations and associations “organized and operated exclusively for religious, charitable, scientific, or educational purposes, no part of the net income of which inures to the benefit of any private stockholder or individual”).

8 Reviewing the precedents, the United States Court of Appeals for the Fourth Circuit concluded that “both the decisions reached on the facts and the views expressed in the opinions are so varied and so divergent, that they cannot readily be reconciled.” United States v. Community Services, Inc., 189 F.2d 421, 428 (4th Cir. 1951), cert. denied, 342 U.S. 932 (1952). Opinion 117 F.T.C.

Services, Inc., 189 F.2d 421 (4th Cir. 1951), cert. denied, 342 US. 932 (1952); cf. Squire v. Students Book Corp. 191 F.2d. 1018, 1020 (9th Cir. 1951) (observing that “resolution of the case before us does not depend wholly on the ultimate destination of the taxpayer’s profits,” finding that the business of a campus book store “bears a close and intimate relationship to the functioning of the College itself,” and holding that the enterprise was tax-exempt without expressly choosing between source-of-income and destination-ofincome tests).

The debate was finally settled, not by the courts, but by Congress. The Revenue Act of 1950 amended the Internal Revenue Code to make it clear that both the source of income and the destination of income were relevant. The feeder organization amendment, as currently codified in Section 502(a) of the Internal Revenue Code, provides:

An organization operated for the primary purpose of carrying on a trade or business for profit shall not be exempt from taxation under section 501 on the ground that all of its profits are payable to one or more organizations exempt from taxation under section 501.

26 U.S.C. 502 (a).” Pursuant to the feeder organization amendment, the mere fact that an organization distributes all of ts profits to exempt organizations does not confer an exemption. If the feeder organization itself operates “for the primary purpose of carrying on a trade or business for profit,” it is subject to taxation. As observed by the United States Court of Appeals for the Ninth Circuit: Without exception, [the courts of appeals which have considered the feeder organization amendment] concluded that in [adopting that amendment] the Congress intended to require courts to adopt the source-of-income test previously followed by this circuit, rather than the destination-of-income test that had been followed in other circuits.

University Hill Found. v. Commissioner, 446 F.2d 701, 706 (9th Cir. 1971), cert. denied, 405 U.S. 965 (1972).

In the same Revenue Act of 1950, Congress further amended the Code by imposing a tax on the unrelated business income of exempt Section 502(b) of the Code, as amended in 1969, provides exceptions for businesses deriving certain rents; businesses in which substantially all the work is performed without compensation; and businesses which sell merchandise received as gifts or contributions. COLLEGE FOOTBALL ASSOCIATION, ET AL. 997 971 Opinion organizations.’ As currently codified, the unrelated business income rule taxes organizations otherwise exempt under Section 501(c), as well as state colleges and universities, to the extent of their unrelated business taxable income. 26 U.S.C. 511.'' “Unrelated business taxable income” refers to gross income from “any trade or business the conduct of which is not substantially related (aside from the need of such organization for income or funds or the use it makes of the profits derived) to the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption... .” 26 U.S.C. 512-13. “The effect of the 1950 legislation was to abandon the preexisting doctrine that the destination of income (i.e. for the exempt Iowa State) was more important than its source (i.e. a commercial enterprise such as WOI-TV).” Jowa State Univ. of Science & Technology v. United States, 500 F.2d 508, 518-19 (Ct. Cl. 1974) (holding Iowa State University taxable under the unrelated business income rule on the income earned by its wholly-owned commercial television station). The guidance from federal tax law is clear. Congress has sought to protect and support specific categories of not-for-profit organizations by freeing them from tax liabilities but only so long as (1) no part of their net earnings inures to the benefit of any private shareholder or individual and (2) the activities which generate the income--whether conducted by a feeder organization or by the exempt entity itself--are in furtherance of exempt purposes. The test is twopronged and requires an adequate nexus between the entity’s operations and recognized public purposes. Indeed, CFA repeatedly acknowledged at oral argument that a two-pronged test, looking to both the destination and the source of income, was appropriate. Discussing a hypothetical situation where a collection of schools purchased the stock of General Motors, counsel for CFA argued:

10 Whereas the feeder organization amendment deals with separate organizations which feed profits to exempt entities, the unrelated business income rule deals with certain income earned by the exempt entities themselves. The separate, feeder organizations are declared non-exempt. In contrast, the unrelated business income rule maintains the entities’ tax-exempt status, but subjects their unrelated business income to taxation. See University Hill, 446 F.2d at 707 n.4. 26 U.S.C. 512 confines the tax to income derived from unrelated trade or business “regularly carried on.”

As explained by Intemal Revenue Service regulations: The presence of {the unrelated business income rule’s “substantial relationship”] requirement necessitates an examination of the relationship between the business activities which generate the particular income in question--the activities, that is, of producing or distributing the goods or performing the services involved--and the accomplishment of the organization’s exempt purposes. 26 CFR 1.513-1(d)(1). Opinion WTEC.

Well the point there would be that General Motors, the corporation, does not act in a public purpose, it manufactures cars. And therefore you don’t get to the question of what happens to its profits. And so the argument there would be that the Commission could reach General Motors because it doesn’t operate -- because that distinct corporation doesn't operate in a public purpose. ... the question is are you a nonprofit organization or not. General Motors is not because manufacturing cars is not a public purpose. OA Tr. at 39-40. Emphasizing the two-pronged nature of the test, CFA counsel explained:

Well, you have to show that first you operate -- that you’re organized to carry out a public purpose, such as education or amateur athletics. Then we also have to show -- or they have to disprove, since it’s their burden -- that the money doesn’t come into private pockets.

And that’s what these hypotheticals keep illustrating. The General Motors hypothetical shows not a public purpose. Therefore, even if the money doesn’t get to private pockets, it’s still not non-profit. Id. at 53 (emphasis added).

We agree with CFA counsel on this point. The not-for profit jurisdictional exemption under Section 4 requires both that there be an adequate nexus between an organization’s activities and its alleged public purposes and that its net proceeds be properly devoted to recognized public, rather than private, interests. III. IS CFA ORGANIZED TO CARRY ON BUSINESS FOR ITS OWN PROFIT? CFA is formally organized as a nonprofit association. Its basic operation involves funneling its revenues, apart from administrative expenses and salaries, to its members. Thus the Initial Decision found:"

1. CFA is formally organized as a nonprofit association. IDF 1. 13 [he Initial Decision makes reference to “findings of fact,” and Section 5(b) of the Federal Trade Commission Act, 15 U.S.C. 45(b), requires “findings as to the facts.” Of course, in a case resolved through summary decision, findings of fact are appropriate only to the extent that the facts are not subject to genuine dispute. We understand the Administrative Law Judge to have used the term in this fashion. If, instead, it had been necessary to resolve disputed factual issues concerning the jurisdictional questions at hand, relevant discovery, at a minimum, should have been completed. COLLEGE FOOTBALL ASSOCIATION, ET AL. 999 971 Opinion 2. CFA has been recognized by the Internal Revenue Service as tax-exempt under Section 501(c)(3). IDF 2."* 3. CFA’s officers and directors are not paid. Its staff, including its executive director, is compensated for services rendered. Audited financial statements show that CFA’s salaries and employee benefits have amounted to less than 1% of its cumulative television revenues. IDF 3-4.

4. CFA negotiates and signs television contracts, receives the revenues, and makes payments to its members. All of CPA’s members receive “participation pool” payments, and those whose football games are actually televised receive rights fees. CFA is obligated to pay the rights fees within 90 days after a game is played. CFA makes the participation pool payments in June following the football season, investing the funds in the interim in conservative investments. The earnings on investments are used to pay CFA’s administrative expenses for the television plan. None of the net revenues is retained by CFA. IDF 8-10.

5. CFA’s members are all organized under applicable nonprofit laws or as state or federal instrumentalities. IDF 5. CFA’s private university members are all tax-exempt organizations under Section 501(c)(3). ID at 17.

6. Revenues earned by the sale of football telecasting rights are used by the CFA members for sustaining their athletic programs and/or for educational purposes. See IDF 7."° Complaint counsel have not challenged any of these findings on appeal.'® From these facts -- and assuming for present purposes no 4 Although complaint counsel do not challenge the accuracy of this finding, they do question its continued reliability. Thus, they note that the last of the exemption review letters issued to CFA is dated August 8, 1984, and they observe that the first of CFA’s television contracts was not implemented until the 1984 football season. However, CFA had entered a television contract as early as August 8, 1981. Appendix to CFA’s Motion for Summary Decision (March 1991), Tab 2, Neinas Tr. at 39. Although that contract was never implemented, id. at 40, it is undisputed that a subsequent contract, which was implemented, was entered before the last exemption review letter was issued -- the football season had simply not begun. CFAB at 11 n.10. Perhaps more important, complaint counsel concede that CFA’s television revenues have remained tax-exempt since 1984. OA Tr. 70. The Initial Decision’s specific finding was that CFA’s revenues “are used by the institutions for-their proper nonprofit purposes, including sustaining their athletic programs . ...” IDF 7. Complaint counsel deny the accuracy of this finding, insofar as it suggests that the revenues devoted to sustaining university athletic programs are used for proper non-profit purposes. Issues pertaining to the university members’ use of the revenues received from CFA are discussed infra at Section IV.B. 16 In opposing summary disposition by the Administrative Law Judge, complaint counsel denied CFA’s assertion that it retains only that portion of its gross television revenue necessary to pay its administrative expenses. However, complaint counsel concede on appeal that 95-98% of CFA’s revenue in excess of expenses is distributed to its members. CCRB at 18 n.15. Opinion 117 F.T.C.

misapplication of the funds by the colleges and universities -- it would appear that CFA satisfies a destination-of-income test in that no part of its revenues inures to the benefit of private individuals or for-profit business entities.

Rather than challenging the facts relied upon in the Initial Decision, complaint counsel have proffered legal arguments directed primarily toward demonstrating that CFA has not satisfied the second standard, focusing on the source of income. In addition, complaint counsel cite Commission Rule 3.24(a)(2), 16 CFR 3.24(a)(2), for the proposition that summary decision is appropriate only where “there is nO genuine issue as to any material fact and . . . the moving party is entitled to such decision as a matter of law,” and argue that unresolved factual disputes material to their theories render this case inappropriate for summary disposition.

Complaint Counsel argue first that CFA’s predominant activity-selling telecast rights--is purely commercial activity and that this renders CFA subject to Commission jurisdiction. They contend that the Initial Decision failed to consider the evidence showing the business nature of CFA’s telecast activities and to resolve conflicts in the evidence in their favor, as is required under the summary decision standard.

However, concerning whether CFA engages in commercial activity, there does not appear to be any genuine issue as to a material fact: CFA concedes that it engages in large-scale commercial activity from which it generates substantial revenue. See CFA’s Motion for Summary Decision at 34 (March 1991). ("CFA does not dispute, and stipulates for purposes of this motion, that it is engaged in selling college football telecast rights, that those telecast sales activities are a substantial part of CFA’s overall activities, and that the sales activities generate millions of dollars of pecuniary revenue to CFA’s members") (emphasis in original); CFA’s Reply to Complaint Counsel’s Response to CFA’s Jurisdictional Motion at 21 n.26 (May 17, 1991) (“CFA agrees that the sale of its members’ television rights is a business activity”). Both the commercial nature of CFA’s activities and the business source of its revenues are admitted; only the legal implications deriving from the commercial nature of its activities are in dispute.

A properly defined source-of-income test does not equate commercial activity, even when large-scale and systematic, with the COLLEGE FOOTBALL ASSOCIATION, ET AL. 1001 971 Opinion statutory requirement of organization to carry on business for profit. Community Blood Bank made it clear that commercial activity by itself does not subject an entity to the Commission’s jurisdiction. There the court rejected the Commission’s claim of jurisdiction over a blood bank, notwithstanding the Commission’s finding that the blood bank perform[ed5 1 3 1 6 4 1035 878 59 43 96.886414 its]5 1 3 1 6 5 1109 878 181 35 96.275345 functions5 1 3 1 6 6 1304 878 36 35 96.618164 in5 1 3 1 6 7 1354 878 106 50 96.965988 much5 1 3 1 6 8 1474 878 58 35 96.513496 thes 1 3 1 6 9 1546 888 99 25 96.729996 same5 1 3 1 6 10 1658 889 147 24 96.729996 manners 1 3 1 6 11 1818 889 72 24 96.373360 as...4 1 3 1 7 0 556 936 1335 46 -1 5 1 3 1 7 1 556 936 56 35 96.862633 thes 1 3 1 7 2 625 936 226 36 96.842361 commercials 1 3 1 7 3 865 936 108 36 96.532677 blood5 1 3 1 7 4 985 936 94 36 96.659485 banks 1 3 1 7 5 1092 937 68 35 91.350578 ands 1 3 1 7 6 1174 965 30 7 87.606331 ...5 1 3 1 7 7 1220 936 192 43 56.874664 receive[d]5 1 3 1 7 8 1428 936 268 46 95.851051 compensations 1 3 1 7 9 1710 936 56 36 96.969055 for5 1 3 1 7 10 1777 937 114 45 96.221794 goods4 1 3 1 8 0 555 994 1336 46 -1 5 1 3 1 8 1 555 994 166 45 95.668320 supplied5 1 3 1 8 2 744 995 68 34 95.668320 ands 1 3 1 8 3 836 995 155 35 96.527153 services5 1 3 1 8 4 1014 995 206 35 42.328178 rendered.”5 1 3 1 8 5 1265 995 225 44 92.944214 Community5 1 3 1 8 6 1511 995 120 35 96.859337 Blood5 1 3 1 8 7 1650 995 104 35 96.264702 Banks 1 3 1 8 8 1774 995 45 45 96.264702 of5 1 3 1 8 9 1833 995 58 35 96.940903 thea 1 3 1 9 0 553 1046 1337 55 -1 5 1 3 1 9 1 553 1054 142 35 96.985466 Kansas5 1 3 1 9 2 711 1054 79 44 96.820801 City5 1 3 1 9 3 800 1055 104 39 92.362190 Area,5 1 3 1 9 4 922 1054 134 41 92.362190 Inc.,705 1 3 1 9 5 1069 1054 89 36 91.827339 FTC5 1 3 1 9 6 1173 1054 83 41 96.113937 728,5 1 3 1 9 7 1272 1054 71 36 93.030640 9095 1 3 1 9 8 1359 1046 168 51 85.425537 (1966).'’5 1 3 1 9 9 1553 1055 75 34 97.009514 Thes 1 3 1 9 10 1642 1061 101 28 96.841064 courts 1 3 1 9 11 1758 1055 132 46 96.969749 quoted4 1 3 1 10 0 554 1112 1240 47 -1 5 1 3 1 10 1 554 1112 84 35 96.811928 with5 1 3 1 10 2 654 1113 170 45 96.463654 approvals 1 3 1 10 3 840 1113 57 35 96.717453 thes 1 3 1 10 4 913 1113 198 46 96.336617 dissenting5 1 3 1 10 5 1126 1114 157 35 96.393951 remarks5 1 3 1 10 6 1300 1113 42 36 96.972206 of5 1 3 1 10 7 1353 1113 289 36 96.305756 Commissioners 1 3 1 10 8 1655 1114 139 35 96.449432 Elman:2 1 4 0 0 0 551 1220 1338 129 -1 3 1 4 1 0 0 551 1220 1338 129 -1 4 1 4 1 1 0 551 1220 1338 40 -1 5 1 4 1 1 1 551 1220 62 29 96.450226 Thes 1 4 1 1 2 627 1220 136 39 96.664520 majority5 1 4 1 1 3 777 1221 122 38 96.650375 opinions 1 4 1 1 4 912 1221 98 39 96.922882 points5 1 4 1 1 5 1024 1226 51 25 96.085426 outs 1 4 1 1 6 1087 1222 61 29 96.588821 that5 1 4 1 1 7 1159 1222 196 38 96.021774 Community5 1 4 1 1 8 1369 1222 98 29 96.003838 Blood5 1 4 1 1 9 1480 1222 86 29 96.694870 Banks 1 4 1 1 10 1578 1222 145 29 96.615601 conducts5 1 4 1 1 11 1737 1222 36 29 96.748436 its5 1 4 1 1 12 1786 1221 103 30 96.834793 affairs4 1 4 1 2 0 551 1270 1337 40 -1 5 1 4 1 2 1 551 1270 29 29 95.726151 in5 1 4 1 2 2 592 1279 17 20 95.726151 a5 1 4 1 2 3 619 1270 194 29 96.984863 businesslike5 1 4 1 2 4 825 1270 115 30 96.329887 fashions 1 4 1 2 5 952 1271 56 29 96.329887 ands 1 4 1 2 6 1021 1271 100 30 94.731415 makes5 1 4 1 2 7 1132 1271 103 38 96.863213 profits5 1 4 1 2 8 1247 1280 39 21 96.974503 on5 1 4 1 2 9 1298 1271 47 30 96.794220 thes 1 4 1 2 10 1357 1271 60 30 96.758636 sales 1 4 1 2 11 1428 1271 35 30 96.758636 of5 1 4 1 2 12 1471 1271 99 34 96.001350 blood,5 1 4 1 2 13 1583 1271 50 30 96.995583 but5 1 4 1 2 14 1645 1271 58 30 96.977264 that5 1 4 1 2 15 1714 1271 24 30 96.972191 is5 1 4 1 2 16 1750 1271 138 39 96.972191 certainly4 1 4 1 3 0 551 1319 341 30 -1 5 1 4 1 3 1 551 1319 35 29 96.515511 of5 1 4 1 3 2 595 1328 39 21 96.338593 no5 1 4 1 3 3 646 1320 156 29 96.471657 relevance5 1 4 1 3 4 815 1320 77 29 96.193336 here.2 1 5 0 0 0 544 1422 1342 988 -1 3 1 5 1 0 0 547 1422 1339 639 -1 4 1 5 1 1 0 553 1422 1333 53 -1 5 1 5 1 1 1 553 1428 222 44 96.000244 Community5 1 5 1 1 2 787 1428 118 35 96.686325 Blood5 1 5 1 1 3 916 1429 111 40 96.982948 Bank,5 1 5 1 1 4 1041 1429 71 35 96.806923 4055 1 5 1 1 5 1127 1430 88 34 92.940964 F.2d5 1 5 1 1 6 1230 1436 33 28 96.207611 at5 1 5 1 1 7 1282 1430 102 40 96.207611 1019,5 1 5 1 1 8 1400 1430 147 45 95.960587 quoting5 1 5 1 1 9 1562 1430 47 35 95.960587 705 1 5 1 1 10 1623 1431 88 34 96.412582 FTC5 1 5 1 1 11 1726 1437 34 28 96.551392 at5 1 5 1 1 12 1774 1422 112 44 0.000000 950. Similarly, the Internal Revenue Code subjects an exempt entity to taxation not on all business income, but only on unrelated business income, viz., income from business activities ‘not substantially related” to the purpose or function constituting the basis for the entity’s exemption. 26 U.S.C. 511-13. In like fashion, something more than mere commercial activity is needed to subject CFA to Commission jurisdiction under the source-of-income test. As explained supra in Section II, the appropriate evaluation depends on the presence or absence of an adequate nexus between CFA’s activities and its recognized public purposes. Complaint counsel argue next that there is in fact no nexus between CFA’s television contracting activities and recognized public purposes or that, at a minimum, there are material facts in dispute concerning this question, making summary decision improper. CFA responds that it serves two public purposes--promotion of education and fostering of amateur sports competition. It argues ! Community acquired its blood for $15 and charged hospitals a replacement fee of $25 plus a processing fee of $9. 70 FTC at 763-64 (Initial Decision). 18 Complaint counsel argue that the judicial decisions in Board of Regents of the University of Oklahoma v. National Collegiate Athletic Assn, 546 F. Supp. 1276 (W.D. Okla. 1982), aff'd in part, remanded in part, 707 F.2d 1147 (10th Cir. 1983), aff'd, 468 U.S. 85 (1984), as well as representations by CFA members in that litigation, establish the for-profit nature of television rights marketing activities similar to those engaged in by CFA. However, the issues underlying the cited materials--whether the NCAA's television restrictions could escape per se condemnation or could be justified under the rule of reason as ancillary to legitimate purposes or as generating procompetitive efficiencies--are inapposite to whether CFA is organized to carry on business for profit for purposes of jurisdiction under the Federal Trade Commission Act.

Opinion H7F.T.C.

that (i) athletics are part of education; (ii) direct viewing of athletics contributes to the athletic/educational experience; and (iii) televised viewing is analytically indistinguishable from direct viewing of athletics, as is the income derived from the two sources. Both legislative and administrative pronouncements support CFA’s position. Congress spoke on the issue in 1950, when it enacted the taxes on feeder organizations and unrelated business income. The committee reports of both the Senate and the House of Representatives found a clear nexus between athletic activities and education: “Athletic activities of schools are substantially related to their educational functions.,”'? The committees of both houses also found a direct link between exhibiting athletic contests and education:

Of course, income of an educational organization from charges for admission to football games would not be deemed to be income from an unrelated business, since its athletic activities are substantially related to its educational programs.”° No meaningful distinction between the sale of admission tickets and the sale of television rights has been advanced. The Internal Revenue Service has extended the Congressional findings directly to “the sale of . . . broadcasting rights.” A 1980 Revenue Ruling explains:

The Service has traditionally taken the position that income from paid admissions to college and university athletic events, regardless of the number of persons in attendance or the amount of paid admissions, is not taxable as income from unrelated trade or business because the events themselves are related to the educational purposes of the colleges and universities. Also, the educational purposes served by exhibiting a game before an audience that is physically present”' and exhibiting the game on television or radio 19 S. Rep. No. 2375, 81st,Cong., 2d Sess. 29 (1950); H.R. Rep. No 2319, 81st Cong., 2d Sess. 37 (1950); accord Staff of the Joint Comm. on Internal Revenue Taxation, 81st Cong., 2d Sess., Summary of H.R. 8920, “The Revenue Act of 1950,” as Agreed to by the Conferees 24, reprinted in 1950 U.S. Code Cong. & Admin. News 3219, 3240. 20 S. Rep. No. 2375, 81st Cong., 2d Sess. 107, reprinted in 1950 U.S. Code Cong. & Admin. News 3053, 3165; H.R. Rep. No. 2319, 81st Cong., 2d Sess. 109 (1950). (Emphasis added.) The IRS had previously explained, in private letter rulings: [A]n audience for a game may contribute importantly to the education of the student-athlete in the development of his/her physical and inner strength and to the education of the student body and the community-at-large in heightening interests in and knowledge about the participating schools . . . Attending the game enhances student interest in education generally and in the institution because such interest is whetted by exposure to a school's athletic activities. Moreover, the games (and the opportunity to observe them) foster those feelings of identification, loyalty, and participation typical of a well-rounded educational experience. COLLEGE FOOTBALL ASSOCIATION, ET AL. 1003 971 Opinion before a much larger audience are substantially similar. Therefore, the sale of the broadcasting rights and the resultant broadcasting of the game contributes importantly to the accomplishment of the organization’s exempt purposes. Rev. Rul. 80-296, 1980-2 C.B. 195 (footnote added). This Revenue Ruling links the sale of college sports broadcasting rights to the promotion of education. A second Revenue Ruling from the same year links the sale of broadcasting rights to promoting amateur sports:

The broadcasting of [a national amateur athletics governing body’s] sponsored, supervised, and regulated athletic events promotes the various amateur sports, fosters widespread public interest in the benefits of its nationwide amateur athletic program, and encourages public participation. Therefore, the organization’s sale of broadcasting rights and the resultant broadcasting of its athletic events contributes importantly to the accomplishment of its exempt purposes .. . . The sale of exclusive broadcasting rights, under the circumstances described above, is substantially related to the purpose constituting the basis for the organization’s exemption and, therefore, is not unrelated trade or business within the meaning of section 513 of the Code.

Rev. Rul. 80-295, 1980-2 C.B. 194.”

To the extent that the Initial Decision suggests that the Commission necessarily defers to related IRS determinations in deciding whether an entity is organized to carry on business for profit, the Initial Decision would be in error. As the Commission explained in AMA:

We recognize that a respondent’s status as either a Section 501(c)(3) or (6) taxexempt organization does not obviate the relevance of further inquiry into a IRS Private Letter Rulings 7851002, 7851005, and 7851006. The private letter rulings lack precedential value, and they are cited here only to suggest the considerations which apparently underlie the quoted Revenue Ruling’s reference to “educational purposes served by exhibiting a game before an audience that is physically present.”

22 Complaint counsel claim that the IRS determinations have no precedential value even for tax purposes. CCAB at A-9, n.18. That is incorrect. “A ‘Revenue Ruling’ is an official interpretation by the Service that has been published in the Internal Revenue Bulletin.” 26 CFR 601.601 (d)(2)(i)(a). “Revenue Rulings published in the Bulletin do not have the force and effect of Treasury Department Regulations (including Treasury decisions), but are published to provide precedents to be used in the disposition of other cases, and may be cited and relied upon for that purpose.” 26 CFR 601! .601(d)(2)(v)(d). While the Revenue Rulings lack the force of statutes and regulations, they express “the studied view of the agency whose duty it is to carry out the statute,” and are entitled to some weight. Brook, Inc. v. Commissioner, 799 F.2d 833, 836 n.4 (2d Cir. 1986), quoting Anselmo v. Commissioner, 757 F.2d 1208, 1213 n.5 (11th Cir. 1985).

Opinion 117 F.T.C.

respondent’s operations and goals ... . Rulings of the Internal Revenue Service are not binding upon the Commission ....

94 FTC at 990. Although IRS rulings are not binding on the Commission, such determinations nevertheless offer significant guidance. See id. (finding an entity’s tax-exempt status a factor “to be considered” and cautioning that IRS determinations “should not be disregarded”); Ohio Christian College, 80 FTC at 848. Here, the IRS rulings do not stand alone, and the fact that they reflect legislative intent, as expressed by both houses of Congress, adds weight to their authority.

On the other hand, complaint counsel seek to distinguish the Revenue Rulings on grounds that they dealt with entities that were themselves directly involved in making the televised athletic contests possible. CCAB at A-9 n.18. Moreover, complaint counsel contend that because the alleged effect of CFA’s contracts has been to reduce output, CFA has acted to diminish the televised viewing of college football and thus to impede rather than to foster education and amateur athletics. CCRB at 22 n.24. While, under the circumstances present, we do not find these arguments determinative,” these contentions do underscore why the Section 4 inquiry should not rely completely on IRS rulings.

Consequently, it remains fully appropriate for the Commission to conduct an independent factual inquiry into the nexus between CFA’s activities and its alleged public purposes, and not simply to rely on the IRS rulings. However, because the Revenue Rulings suggest that the promotion of televised viewing of amateur sports itself serves a public purpose and because of the closeness of CFA’s activities to the promotion of televised viewing, the factual inquiry here is somewhat more complicated than would be the usual case. Specifically, complaint counsel must show that CFA’s activities are not aiding either of the recognized public purposes--(i) furthering education and (ii) fostering amateur athletics--by breaking the linkage between televised college sports and these purposes; by demonstrating CFA’s failure to promote televised viewing of college football; or by some other technique.

In this regard, complaint counsel deny that CFA is organized and operated for purposes of education and fostering national amateur 2.

Complaint counsel fail to explain why the claimed distinction makes a material difference to the analysis expressed in the Revenue Rulings. The contention that CFA has reduced output is discussed infra at note 27 and accompanying text.

COLLEGE FOOTBALL ASSOCIATION, ET AL. 1005 971 Opinion sports competition. Although they accept that there may be educational value in intercollegiate sports, they assert that “big-time” college football programs are entertainment businesses with purposes often inconsistent with education and amateur sports competition. They argue that CFA’s telecast operations have no purpose or value other than making money and offer evidence intended to show that CFA is a commercial enterprise focused on making money through the sale of telecast rights. These arguments, however, largely go to whether CFA’s activities can be characterized as commercial, and Community Blood Bank teaches that commercial activity alone is an insufficient basis upon which to find jurisdiction. Moreover, evidence of CFA’s business nature and revenue-generating efforts misses entirely the point that the benefits to public purposes have been understood to flow from the presence of the telecasts themselves.”

Concerning the relevant question--whether there is an adequate nexus between CFA’s activities and its alleged public purposes-complaint counsel have provided little factual information. With regard to the promotion of education, complaint counsel offer assertions rather than specific facts.” In challenge to the nexus to amateur sports, complaint counsel offer virtually no facts whatsoever.”© With regard to whether CFA is promoting televised viewing, complaint counsel offer allegations of output restriction and assertions that such restrictions impede rather than foster education See generally 26 CFR 1.513-1(d)(2) (emphasizing that the test for unrelated business income is whether the conduct of the business activities has substantial “causal relationship to the achievement of exempt purposes (other than through the production of income)”) (emphasis added). 5 See, e.g., Complaint Counsel’s Opposition to Respondents’ Motions for Summary Decision at Ex. A (Affidavit of Murray Sperber) (asserting in conclusory fashion that “CFA’s television-related activities .. . do not, in any way, advance the fundamental goals of higher education"). While complaint counsel argue that enhancing the athletic programs of CFA members does not necessarily serve an educational function, their evidence--such as various selections from the testimony presented to the Knight Foundation Commission on Intercollegiate Athletics--is directed toward demonstrating the commercial nature of “big-time” college football, rather than toward rebutting the linkage to education articulated by Congress and the IRS.

In addition to their observations concerning the central role of television contracting activities in CFA’s operations, complaint counsel's single pertinent factual assertion is that the revenues generated are not used by CFA to promote amateur sports but rather are distributed to its members.” CCRB at 21.22. This contention, however, overlooks the fact that the members may devote the revenues to support their amateur athletic programs, see infra Section IV.B., and it ignores the direct fostering of amateur sports that has been found to flow from their broadcasting. See Rev. Rul. 80-295, supra. Opinion II7 FLT.C.

and amateur athletics, but no evidence that CFA is in fact not promoting televised viewing.”’ More is needed to defeat a motion for summary decision. The Supreme Court has emphasized that the party opposing summary judgment is required to raise more than “some metaphysical doubt.” Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). See 6 Moore’s Federal Practice paragraph 56.15[3] at 56-274-76 (“the opposing party’s facts inust be material, and of a substantial nature, not . . . conjectural, speculative, nor merely suspicions”) (footnotes omitted). Even if all inferences are drawn in favor of the nonmoving party, complaint counsel have failed to raise a genuine issue of material fact casting doubt upon the nexus between CFA and its asserted public purposes. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Celotex Corp. v. Catrett, 477 U.S. 317 (1986).”* 27 One arguable suggestion of output restriction--a reference in a 1981 American Council on Education letter (Complaint Counsel’s Opposition to Respondents’ Motions for Summary Decision at Ex. E)--indicating that CFA planned to televise fewer games than the National Collegiate Athletic Association would televise, but thought that this would increase viewing of those games presented--is clouded by the fact that CFA represented only a subset of the NCAA colleges. The reference is not cited by complaint counsel as evidence of the claimed output restriction. Complaint counsel mut do more in this jurisdictional inquiry than merely positing that a full-blown trial will in fact show that CFA is restricting the televising of college football. Complaint counsel’s assertions equate the jurisdictional inquiry with the substantive liability determination for anticompetitive output restrictions. We cannot accept an interpretation of our jurisdictional reach that in effect would (i) require trial on the merits before reaching the jursdictional issue and (ii) find freedom from jurisdiction only in the absence of substantive liability. Such an interpretation effectively is no jurisdictional limitation at all.

Complaint counsel argue that the Administrative Law Judge improperly ruled on the parties’ summary decision motions before discovery could be completed. Given the fact-based nature of the jurisdictional inquiry under Section 4, see, e.g., FTC v. Ernstthal, 607 F.2d 488 (D.C. Cir. 1979), relevant discovery, as a general rule, should be completed before the jurisdictional question can be answered adequately. Complaint counsel, however, were afforded substantial discovery before the parties’ motions were made. See supra note 2 and accompanying text. Indeed, the Administrative Law Judge, early in the litigation, denied motions for dismissal so that relevant discovery could proceed. Moreover, Commission rules permitted complaint counsel to seek further discovery in response to a motion for summary decision. Commission Rule 3.24(a) (4), 16 CFR 3.24(a) (4), permits a party opposing a motion for summary decision to submit a document, usually in the form of an affidavit, explaining with specificity why it cannot present facts essential to justify its opposition and how further discovery will defeat the summary decision motion. In this case, complaint counsel did not specify exactly how discovery--in addition to that already conducted--would defeat the summary decision motion, that is, would establish the presence of a genuine dispute as to a material fact. See SEC v. Spence & Green Chemical Co., 612 F.2d 896, 901 (Sth Cir. 1980) (nonmoving party “may not simply . rely on vague assertions that additional discovery will produce needed, but unspecified, facts”), cert. denied, 449 U.S. 1082 (1981); Contemporary Mission, Inc. v. New York Times Co., 665; F. Supp. 248, 269 (S.D.N.Y. 1987) (“Plaintiffs have not met their burden of showing how the deposition ... would produce material evidence which would be potentially favorable to them”), aff'd, 842 F.2d 612 (2d Cir.), cert. denied, 488 U.S. 856 (1988). Without such a showing, the Administrative Law Judge had no reason to prolong the litigation on the question of jurisdiction. COLLEGE FOOTBALL ASSOCIATION, ET AL. 1007 971 Opinion IV. IS CPA ORGANIZED TO CARRY ON BUSINESS FOR THE PROFIT OF ITS MEMBERS? Complaint counsel argue first that CFA is organized to carry on business for the profit of its members, irrespective of considerations pertinent to their nature. Even assuming that this were not the case, complaint counsel further contend that CFA is nonetheless subject to the Commission’s jurisdiction because the majority of its members are subject to FTC jurisdiction and because CFA’s member universities are acting in the pursuit of profit.

A. Jurisdiction Irrespective of the-Nature of CFA’s Members Complaint counsel contend that by distributing the revenues from the sale of telecast rights, CFA is operating for the profit of its members. Both the statute and the case law, it is claimed, attach jurisdiction from the act of distribution. Thus, complaint counsel argue that the Administrative Law Judge effectively adds language to the statute by reading it as if it were worded to limit jurisdiction to entities that “carry on business for their own profit or that of members who are private persons or forprofit companies.” CCAB at 13 (emphasis in original). However, the for-profit limitation is not an unwarranted gloss, but rather part of the statute itself: Section 4 confers jurisdiction over an entity organized to carry on business “for profit . . . of its members” (emphasis added).

The same point emerges from the case law. No case cited suggests that Section 4 jurisdiction may be predicated on distributions or pecuniary benefits to members not operated for private gain. Community Blood Bank does not so hold. Although complaint counsel suggest that the Eighth Circuit rejected jurisdiction on the limited ground that the respondent blood bank’s and hospital association’s funds were never distributed to their members, nondistribution was merely one of the factors cited by the court. The sentence immediately following the court’s observation that the respondents did not distribute funds to members reads: “Any profit realized in their operations is devoted exclusively to the charitable purposes of the corporation.” 405 F.2d at 1019. The opinion as a whole in no sense establishes that distribution to not-for-profit Opinion 117 F.T.C.

members for use in advancing public purposes renders the distributing association subject to Commission jurisdiction. Similarly, the Commission’s AMA opinion affords complaint counsel no support. Complaint counsel observe that AMA states a two-part test looking to (i) whether an association’s activities “engender a pecuniary benefit to its members” and (ii) whether the activities that engender the pecuniary benefit are “a substantial part of the total activities of the organization, rather than merely incidental to some non-commercial activity.” 94 FTC at 983. Complaint counsel argue that AMA failed to state a third standard requiring that the members themselves be within the Commission’s jurisdiction. CCA.B at 12. However, AMA’s members were profit-seeking physicians. There was simply no need to articulate a third standard.” Stated differently, a finding that a substantial part of an association’s activities engender pecuniary benefits for profit-seeking members is sufficient to establish that the association is organized to carry on business “for the profit” of its members; a finding that such activities engender pecuniary benefits for entities that are not for-profit is not. In contrast to complaint counsel’s position, National Foundation, Inc. v. United States, 13 Cl. Ct. 486 (1987), holds that distribution by one nonprofit entity to other nonprofit entities does not deprive the former of its Section 501 (c) (3) tax exemption. Rather, such distributions were understood to promote exempt purposes, and the defendant was viewed as similar in function to the United Way. Id. at 492. The IRS is in accord. See Rev. Rul. 67-149, 1967-1 C.B. 133 (distributions of income to organizations that are exempt under Section 501(c)(3) do not deprive the distributing organization of an exemption under that section). In effect, the exempt purposes of the receiving entities are imputed to the distributing entity. These teachings have application to the present context. There is no basis in Section 4 for distinguishing a not-for-profit organization which directly applies its funds to public purposes from one which passes funds through to another not-for-profit entity for accomplish- AMA does not predicate its finding of jurisdiction directly on the fact that the members were profit-seeking physicians. However, the Commission expressly recognized that “[r]respondents’ membership serves to distinguish them from the hospital association involved in Community Blood Bank, providing further evidence that they exist in substantial part for the profit of their members.” 94 FTC at 989 (observing that only two of the Community Blood Bank hospital association’s 43 members were proprietary corporations). As indicated in the Initial Decision in Community Blood Bank, 70 FTC at 755-57, 767, 41 of the 43 hospital association members were religious or charitable associations, notfor-profit corporations, or governmental instrumentalities. COLLEGE FOOTBALL ASSOCIATION, ET AL. 1009 971 Opinion ment of those same purposes. In the case of CFA, its distribution of revenues is nothing more than the mechanism for applying funds-through its college and university members--to the recognized public purposes of promoting education and amateur sports competition. That distribution--in and of itself--does not transform CFA into an entity “organized to carry on business for profit,” and it confers no jurisdiction.

B. Jurisdiction Based on the Nature of CFA’s Members Complaint counsel also argue that jurisdiction attaches because of the nature of CFA’s members. Noting that approximately threequarters of CFA’s members are state colleges and universities, complaint counsel contend that (i) these members are subject to Commission jurisdiction as “persons” within the meaning of Section 5 and (ii) jurisdiction over these members creates jurisdiction over CFA. In addition, complaint counsel assert that, even under Section 4’s for-profit test, unresolved factual issues concerning the use of CFA’s revenues by its members preclude summary disposition in CFA’s favor.

Section 5 of the Federal Trade Commission Act empowers the Commission to prevent “persons, partnerships, or corporations” from using unfair methods of competition and unfair or deceptive acts or practices. 15 U.S.C. 45. Complaint counsel argue that state colleges and universities are “persons” within the meaning of Section 5 and therefore fall within the Commission’s jurisdiction without regard to the definition of “corporation” in Section 4. In Massachusetts Board of Registration in Optometry, 110 FTC 549 (1988), we found that a state licensing board was a “person” within the meaning of Section 5 and thus subject to our jurisdiction. We were not, however, presented with the precise question raised here: namely, whether state colleges and universities, entities which bear at least a facially similar likeness to not-for-profit private entities, are subject to our jurisdiction as “‘persons” under Section 5 or whether those entities must still meet as well Section 4's for-profit test. We need not decide this question because, even assuming, arguendo,that such state colleges and universities are “persons” subject to the Commission’s jurisdiction without inquiry under Section 4’s for-profit test, it would nonetheless be improper, under the circumstances of this litigation, to find that the Commission has jurisdiction over CFA. Opinion 117 F.T.C.

Complaint counsel contend that, because many of CFA’s members are arguably “persons,” the Commission automatically has Jurisdiction over CFA. Complaint counsel do not argue that the “persons” jurisdiction of Section 5 applies directly to CFA. Rather, the claim is that Section 5 creates jurisdiction over CFA’s members as “persons” and that, by some undefined mechanism, the jurisdiction over the members automatically creates jurisdiction over the association itself. The argument suffers from a primary theoretical defect: it blurs the distinction between an association and its members. The issue before us is jurisdiction over CFA, the association, not jurisdiction over its members, which are not named in the complaint.

Complaint counsel derive no support from the case law. Massachusetts Furniture & Piano Movers Assn, 102 FTC 1176 (1983), rev’d in part on other grounds, 773 F.2d 391 (Ist Cir. 1985), cited by complaint counsel, in fact demonstrates that the Commission has recognized the distinction between an association and its members. In that case the respondent association disputed the Commission’s jurisdiction on the basis that some of the association’s members were exempt under Section 5 as common carriers. Although the opinion observes that to the extent that the jurisdictional status of the members mattered, at least 50% were nonimmune, the Commission’s initial and primary point was that the association and its members were distinct, so that the jurisdictional status of the members appeared to be irrelevant. Thus, the Commission reasoned:

It is questionable whether the status of the Association’s membership is relevant to this case: the carrier members are not named in the complaint and the challenged conduct is that of the Association.

102 FTC at 1213. Here, CFA, not the members, is named in the complaint, the challenged conduct is that of CFA, and the appropriate test of CFA’s amenability to jurisdiction is that provided in Section 4° The Commission’s decision in Ohio Christian College is not to the contrary. That case involved two nonprofit corporations which were “in reality” identical to an individual respondent. 80 FTC at 847. The Commission’s complaint named as respondents both the corporations and the individual who controlled them. The corporations were “completely dominated” by that individual, who had “complete operational control of everything,” and soles 1 8 1 5 9 1415 2824 90 23 96.903259 controls 1 8 1 5 10 1514 2824 28 23 95.773773 of5 1 8 1 5 11 1548 2824 37 23 95.773773 thes 1 8 1 5 12 1594 2832 69 22 96.655556 purse5 1 8 1 5 13 1672 2824 107 30 78.941818 strings.”5 1 8 1 5 14 1801 2825 31 23 78.941818 Jd.5 1 8 1 5 15 1849 2825 74 23 96.670540 There5 1 8 1 5 16 1933 2833 47 15 97.011978 was4 1 8 1 6 0 643 2863 1338 33 -1 5 1 8 1 6 1 643 2863 115 24 95.717850 “cavalier5 1 8 1 6 2 766 2867 120 20 95.977104 treatments 1 8 1 6 3 893 2863 29 24 97.002144 of5 1 8 1 6 4 928 2864 37 23 96.986252 thes 1 8 1 6 5 973 2869 122 26 96.559731 corporate5 1 8 1 6 6 1103 2869 74 19 96.974266 assets5 1 8 1 6 7 1186 2865 45 23 96.974266 ands 1 8 1 6 8 1240 2865 128 28 95.945435 finances,”5 1 8 1 6 9 1377 2866 45 23 96.011147 ands 1 8 1 6 10 1431 2866 38 24 96.906647 thes 1 8 1 6 11 1477 2866 160 30 96.735107 corporations5 1 8 1 6 12 1646 2873 60 17 96.985542 were5 1 8 1 6 13 1716 2868 77 22 95.312561 “mere5 1 8 1 6 14 1802 2867 72 23 96.729393 shells5 1 8 1 6 15 1883 2867 98 24 96.867790 without4 1 8 1 7 0 643 2905 1337 33 -1 5 1 8 1 7 1 643 2905 145 24 96.797905 substance.”5 1 8 1 7 2 805 2905 32 24 43.918423 Id.5 1 8 1 7 3 847 2910 22 19 93.893707 at5 1 8 1 7 4 878 2905 97 24 93.893707 847-48.5 1 8 1 7 5 992 2906 81 23 96.585587 Under5 1 8 1 7 6 1082 2907 65 22 96.639343 these5 1 8 1 7 7 1156 2906 189 27 96.503586 circumstances,5 1 8 1 7 8 1355 2908 37 22 96.627983 thes 1 8 1 7 9 1401 2907 163 24 96.251587 Commissions 1 8 1 7 10 1573 2915 48 16 96.638580 was5 1 8 1 7 11 1631 2908 89 30 96.526489 willing5 1 8 1 7 12 1730 2913 24 19 96.450798 to5 1 8 1 7 13 1763 2909 92 29 42.090187 “pierce5 1 8 1 7 14 1865 2909 37 23 96.671471 thes 1 8 1 7 15 1912 2909 68 23 95.456871 veil.” COLLEGE FOOTBALL ASSOCIATION, ET AL. 1011 971 Opinion Complaint counsel assert that the Commission’s decision in AMA supports their argument. They argue that “[jJust as the Commission asserted jurisdiction over the American Medical Association, an association of persons, so too here the Commission can assert jurisdiction over CFA, an association of persons.” CCAB at 17. The Commission’s AMA decision, however, cannot be so simplified. The Commission in AMA engaged in a close, factual inquiry into both the activities of AMA and the nature of its members. It did not rest on a theoretical point that the AMA’s members were “persons” under Section 5. Of course, the profit-seeking nature of AMA’s membership obviously had a significant impact on the Commission’s final decision to assert jurisdiction over AMA. That does not mean, however, that AMA can be read to suggest that the mere a priori labelling of some members of an association as “persons” pretermite; the close, factual inquiry required into both the association itself and the nature of its members.

Nor is there statutory language or legislative history in support of complaint counsel’s argument that jurisdiction over an association’s members automatically confers jurisdiction over the association. Indeed, what little exists suggests that in drafting Section 4, Congress fully appreciated the difference between an association and its members. On August 8, 1914, after passage of differing House and Senate bills to create a Federal Trade Commission, Joseph E. Davies, Commissioner of the Bureau of Corporations, conveyed his suggestions regarding the legislation to Senator Francis G. Newlands, Chairman of the Committee on Interstate Commerce.”' The very first concern articulated involved the definition of “corporation.”” Id. at 849. Complaint counsel do not argue that CFA is a shel! rather than a bona fide association of colleges and universities or that there has been a cavalier treatment of assets and finances such as to justify disregard of CFA’s separate identity. Senate Comm. on Interstate Commerce, 63d Cong., 2d Sess., Letter from the Commissioner of Corporations to the Chairman of the Committee on Interstate Commerce, transmitting certain suggestions relative to the Bill (H.R. 15613) to Create a Federal Trade Commission (1914). 3 The House bill, passed on June 5, 1914, provided: “‘Corporation’ means a body incorporated under law, and also joint-stock associations and all other associations having shares of capital or capital stock or organized to carry on business with a view to profit.” H.R. Rep. No. 1142, 63d Cong., 2d Sess. 11 (1914). The Senate bill, passed on August 5, 1914, provided: “The term ‘corporation’ or ‘corporations’ shall include joint-stock associations and all other associations having shares of capital or capital stock, organized to carry on business for profit.” Jd. at 14. A separate section in the Senate bill, but not in the House bill, provided, “The powers and jurisdiction herein conferred upon the commission shall extend over all trade associations, corporate combinations, and corporations as hereinbefore defined engaged in or affecting commerce, except banks and common carriers.” Jd. at 15. This section, though noted, was not discussed by Commissioner Davies. It was deleted from the final legislation. Opinion 117 F.T.C.

Commissioner Davies observed that the House and Senate definitions would preclude the new Commission from inquiring into transactions by not-for-profit associations of manufacturers and dealers despite the potential that these associations furnished for reaching anticompetitive understandings. Commissioner Davies’ suggestion-to eliminate the not-for-profit jurisdictional exclusion--was not accepted, but the bill which emerged dealt with his concern by extending the definition of corporation to encompass any company or association without shares of capital or capital stock (other than a partnership), that is “organized to carry on business for its own profit or that of its members.” 38 Stat. 719 (1914).* While this legislative history is not extensive, it clearly underscores that Congress understood the distinction between an association and its members and that jurisdiction over members might not automatically confer jurisdiction over the association itself.

Finally, to preserve their alternative position that, apart from any “persons” jurisdiction under Section 5, CFA is organized to carry on business for the profit of its members, within the meaning of Section 4, complaint counsel would need to demonstrate genuine issues of material fact casting doubt upon the not-for-profit nature of CFA’s members. Although complaint counsel argued to the Administrative Law Judge that CFA’s members made profits--in the sense of revenues in excess of expenditures--from their college football programs, complaint counsel’s own evidence shows that the members devoted those excess revenues to supporting the lesser, “nonrevenue” sports in their athletic programs. complaint counsel’s Opposition to Respondents’ Motions for Summary Decision (April 22, 1991), Ex. J at 27 and Ex. K at 214-15. Apart from the barest of suggestions that CFA football coaches reap excessive financial benefits, id. at 18 n.17, complaint counsel have not intimated that CFA members have utilized football telecast revenues other than for their athletic and, much less frequently, their academic (id. Ex. S at 214 and Ex. V at 152) programs. However, it has been clear since the Eighth Circuit’s decision in Community Blood Bank that the mere fact that revenues in excess of expenses are applied to perpetuate an entity's own operations is insufficient to subject that entity to 3 The Wheeler-Lea Act of 1938, 52 Stat. 111 (1938), further amended the Section 4 definition of “corporation” by applying the phrase “organized to carry on business for its own profit or that of its members” to companies and associations with shares of capital or capital stock as well. COLLEGE FOOTBALL ASSOCIATION, ET AL. 1013 971 Final Order the Commission’s jurisdiction. Indeed, without entirely abandoning the rhetorical assertion that CFA’s members are “profit-seekers,” CCAB at 8, complaint counsel concede on appeal that “‘it is presumed that states and state entities put revenues from their proprietary activities to some public use .. . .” CCRB at 10. In any case, complaint counsel’s minimal assertions regarding the use of funds by member colleges and universities and their conclusory efforts to label the members’ activities “for-profit” are insufficient to avert summary disposition.

V. CONCLUSION We conclude that complaint counsel have not demonstrated the existence of any genuine issue of material fact concerning whether CFA is organized to carry on business for its own profit or that of its members and thus, concerning whether CFA constitutes a “corporation” within the meaning of Sections 4 and 5 of the Federal Trade Commission Act. Summary disposition in CFA’s favor is appropriate, based on the existing record, and we dismiss the complaint as to CFA for lack of jurisdiction. Under the circumstances of this litigation, we find it in the public interest to dismiss the complaint against CPA with prejudice. As discussed supra at note 3, the complaint against Capital Cities is dismissed without prejudice. FINAL ORDER This matter having been heard by the Commission upon the appeal from the Initial Decision of counsel supporting the complaint and upon briefs and oral argument in support of and in opposition to the appeal, for the reasons stated in the accompanying opinion, the Commission has determined to deny the appeal. Accordingly, It is ordered, That:

1. The complaint as to the College Football Association is dismissed with prejudice; and 2. The complaint as to Capital Cities/ABC, Inc. is dismissed without prejudice.

Concurring Statement 117 F.T.C.

CONCURRING STATEMENT OF COMMISSIONER MARY L. AZCUENAGA On September 5, 1990, the Commission issued a complaint against the College Football Association and Capital Cities/ABC, Inc., and I dissented from that action. Today, the Commission dismisses the complaint, and I concur in the result, except that with respect to the College Football Association, I would dismiss for lack of jurisdiction instead of dismissing “with prejudice.” I reach this conclusion without the extensive analysis in the opinion of the majority, and I do not join that opinion.

At the time the Commission initiated this litigation, I refrained from issuing a statement to explain my dissenting vote in order to avoid any prejudice to the case during the administrative adjudication, to avoid any suggestion of prejudgment of the outcome of the adjudication, and, for the duration of the adjudicative process, in deference to the decision of the majority. My vote against the issuance of the complaint stemmed from my reservations about the Commission’s jurisdiction over the College Football Association and, based primarily on those reservations, my belief that a complaint was not in the public interest. Since the complaint issued, nothing new has been presented in fact or in law to persuade me that the Commission has jurisdiction to proceed against the College Football Association.

The parties do not contest the findings of fact below. Section 5 of the Federal Trade Commission Act authorizes the Commission to issue complaints against persons, partnerships and corporations. Under Section 4, a “corporation” is defined to include only an “association . .. which is organized to carry on business for its own profit or that of its members.” The College Football Association is organized as a nonprofit association, and its revenues from the sale of television rights are distributed to member schools for use in athletics or education. No credible allegation has been made that the nonprofit status of the association is a sham, that its revenues are from anything other than the sale of television nights, or that its funds are not used by member schools for the nonprofit purposes claimed. A plain reading of the statute suggests that the College Football Association is outside the scope of Sections 4 and 5 of the Federal Trade Commission Act.

Complaint counsel argue that even if the association is itself nonprofit, it includes among its members some schools that are COLLEGE FOOTBALL ASSOCIATION, ET AL. 1015 971 Concurring Statement subject to the Commission’s jurisdiction. The College Football Association is made up of private nonprofit universities, state colleges and universities, and federal instrumentalities. Whether or not the commission may have jurisdiction over any of those schools, no showing was made that the association conducted business for the profit of any member, as required by Section 4. No persuasive argument in favor of jurisdiction over the College Football Association having been advanced either before the complaint issued or since, I concur in the dismissal of the complaint. Complaint 117 F.T.C.