First off, this is BYU, and theologically because of their Mormon beliefs they're on a different page than historical, Orthodox Christianity.  In other words, the concept of grace means very different things in a Mormon theology than in a Biblical Christian one.  So we have to be careful about carrying over terminology between the two without clarifications.

Without getting into the issues of Mormonism, however, this is a good opportunity to talk about something near and dear to Lutheran hearts - Law and Gospel.  It's easy to see the law at work in this situation.  The young man violated the code of conduct.  He admitted this and repented of it.  He seems to be - at least as represented in the article linked to above - contrite and repentant.  Those are all good things.  The law (as expressed in the Code of Conduct, which on this particular point happens to be in agreement with Christian Scriptures) has done it's work in showing this young man his failure.

From a Lutheran perspective, what happens next should be grace.  The announcement that as he is repentant and recognizes what he did wrong, and through faith in the substitionary suffering & death of Jesus Christ, he is forgiven.  His sin has been forgiven completely.  It does not remain between he and God.  It is not to be a source of continued guilt and self-reproach.  He can move on in the knowledge that his Lord & Savior loves him.  It's beautiful, the message of grace and the gospel once someone has been broken by the law and brought to the place where they acknowledge their failure.

However, grace and the gospel do not eliminate the temporal ramifications and side effects of sin.  While this young man through faith in Jesus Christ could be declared forgiven (and I'm not asserting this as a fact since there are theological issues that are pretty serious between Mormonism and Christianity), he still has to face the ramifications of his actions.  One of those ramifications is removal from the basketball team.  Other ramifications might include the loss of scholarships.  Certainly another ramification is the shame he has brought upon himself through his actions.  

God has not mandated these ramifications, they are part of the brokenness of our world.  Where sin exists, suffering persists.  We face the music in terms of our fellow human beings, regardless of the forgiveness we receive through faith in Jesus Christ.  The murderer may come to faith in prison, but this saving grace doesn't commute his sentence.  The woman receives forgiveness for the abortion she had when she was a teenager, but this doesn't necessarily completely eradicate the emotional and psychological scarring that may result.  

This article is interesting in that the writer agrees that given the circumstances, removing the player from the team is appropriate.  But then he goes on to attack the code of conduct.  He sees it as an opportunity for exploitation by BYU, an opportunity of furthering their branding, what they're known as and for.  For him, it boils down to marketing and dollars and he objects to the code and to the consequences of that code as simply self-promotion for the school.  It's a very jaded point of view, but probably one a lot of people resonate with.  The only reason to have standards must be to somehow benefit oneself, as opposed to actually attempting to benefit other people as well.  

And the author concludes by confusing the issue of law and gospel.  He assumes that grace and forgiveness mean erasing the worldly effects of a mistake, when this clearly isn't the case.  He might as well make the argument (and perhaps he would) that there shouldn't really be any punishment for being caught selling drugs, because everyone knows that drugs are ubiquitous and it doesn't do anybody any good to try and punish someone who gets caught.  It's the old argument that standards are unrealistic (and eventually, any standard is going to be viewed this way once we begin down this line of reasoning), so there shouldn't be any standards in the first place.  Or the standards should be ornamental - we profess to believe in them but we don't expect anyone (particularly ourselves) to follow them.  It's ultimately a very selfish and utilitarian argument.

But I'm sure it's one that must be tempting for BYU in the midst of a good season.  Regardless, I hope that someone shares the Gospel with this young man, so that he realizes that forgiveness is available, and that he is not the sole measure of his worthiness - before God or anyone else.