By Andy Schwarz
Boiled down its core, the antitrust law of cooperation among competitors says that the cooperation must be reasonable and necessary to create a product that otherwise would not exist. So that’s the lens to view any NCAA agreement among its members. It’s part of a broader principle that lawyers and antitrust folks call the “Rule of Reason.” 1
This fall, there was much excitement when the NCAA announced it would “allow” schools to provide college athletes with cash above the previous level of an athletic scholars, paying either $2,000 or the full cost of attendance (above the existing scholarship), whichever was lower. 2 (Cost of Attendance is often given as “COA” and the standard athletic scholarship is a “GIA,” or a Grant-in-Aid. And new NCAA jargon for the stipends themselves is a “MEA” or “miscellaneous expense allowance.”)
Some of the excitement faded earlier this month when 125 Division 1 schools overrode the new bylaw and thereby eliminated these cash stipends, at least until a vote at the January NCAA convention and possibly forever. 3 Until a new rule is passed, the current NCAA rule on MEA stipends sets a maximum miscellaneous expense allowance of zero.
To me, this feels a little like déjà vu all over again. People who have read my articles probably know that I was one of the progenitors of the White v. NCAA case, in which Jason White and others sued the NCAA, saying that there was nothing reasonable or necessary about capping athletic scholarships below the full cost of attendance. 4 So this is something I’ve studied and felt very passionate about for a long time. With that background, I want to explain why the new NCAA rule allowing stipends, as it was passed in October, was still likely a violation of the antitrust laws, and how the decision of the NCAA member schools to revoke the stipends after only two months likely opens up all of Division I to even greater antitrust liability. And why, if an athlete or a class of athletes were to sue, they would be able to find many economists able to argue strongly that the NCAA rule on stipends, whether set at a maximum of $2,000 or zero, is anticompetitive under a rule of reason analysis.
The two primary ways the NCAA seeks to justify collusion among its members is either “amateurism” or “competitive balance.” In other words, we have to do X, Y, or Z because if we don’t, “amateurism” will be destroyed and thus, claims the NCAA, college sports will also evaporate, though I believe that’s false (see Myth 7 of my analysis of the NCAA’s purported pro-competitive justifications 5 ). Or, we have to do X, Y, or Z because if we don’t, “competitive balance” will be destroyed, even though there really isn’t competitive balance in FBS football or D1 basketball now and the level of collusion doesn’t help to preserve it (see Myth 4).
Leaving aside whether those arguments work generally, in this very specific case they fail.
First, let’s tackle claims of “amateurism”:
Prior to being overridden, the new MEA rule said that a school could, but was not required to,
pay for an athlete’s entire cost of attendance at school as long as the component that covers travel expenses and living expenses did not exceed $2,000. Previously, by collective agreement, schools were not allowed cover the cost of travel or living expenses at all. Since December 15, when the new rule was overridden, NCAA bylaws forbid all schools from paying its athletes any expense allowance, at the risk of being collectively boycotted by the other 343 Division 1 schools.
By enacting a stipend bylaw, however temporarily, the NCAA in its role as self-proclaimed arbiter of what constitutes amateurism, announced that it is perfectly fine for some college athletes to receive an athletic scholarship that covers their full cost of attendance without jeopardizing their amateur status. NCAA President Mark Emmert went further, saying that these new MEA stipends are not “pay for play” even for those athletes who qualify to have their full cost of attendance covered with this cash payment. 6
From an antitrust point of view, this is a fairly straightforward way of saying that capping scholarships below the full cost of attendance is not necessary to preserve amateurism. After all, according to Emmert, it’s not even pay if you cover an athlete’s full cost of attendance. And according to the NCAA Division I Board of Directors, this non-pay payment is fully consistent with the NCAA principles of amateurism, as they define it, even if a college athlete has his full cost of attendance covered by the GIA plus the MEA.
Even for the two months that the MEA of $2,000 was allowed, it was clear that only some athletes would have their full cost of attendance covered by these stipends. The average official cost of travel and living expenses at FBS schools is closer to $3,200, 7 and because that is an average, at many schools (roughly half of them) the gap is larger. That means that for the average college football or basketball player on a GIA, even if the stipend rule were to be reinstituted, the NCAA would be colluding to cap his stipend below his cost of attendance, even though a cap below the full cost of attendance is NOT needed (per the NCAA itself) to preserve amateurism. Since December 15 the NCAA has gotten into an even worse bind – it has publicly stated that full Cost of Attendance scholarships are perfectly fine, in terms of preserving amateurism, but it now denies them to every single Division I athlete.
So if the NCAA were sued, they would have to be to say that even though paying an athlete a stipend to cover his full cost of attendance does not violate amateurism, they’ve colluded to cap all athletes’ (i.e., Plaintiffs’) scholarships below that amateur level, and even if the $2,000 rule is reinstated, the NCAA schools are still colluding to keep the cap below the full cost of attendance for all athletes at schools where the gap between the GIA and the full cost of attendance exceeds $2,000. Once you’ve said that a full COA scholarship does not run afoul of the principle of “amateurism,” arguing you have to have a cap below that level to preserve “amateurism” is an extremely hard position to maintain.
Second, let’s look at competitive equity. Emmert stated recently that he agrees with me that competitive equity is not a valid justification for avoiding these MEA stipends. For a piece on ESPN.com, I said it like this: 8
“Today there are haves and have-nots. Haves recruit great players and consistently win. Have-nots get the leftovers and occasionally luck into hidden gems, who gel as seniors and win. Over the last 10 years, more than 99 percent of the top 100 high school prospects chose BCS AQs. Alabama plays Kent State this September, but what top recruit would spurn an offer from Alabama to attend Kent? Ironically, letting have-nots use cash is the best way to overcome the current unlevel playing field.
Emmert said it like this: 9
(question) You recently had the rule changed so that conferences could offer scholarship athletes a $2,000 stipend. How are the conferences that can’t afford that — such as the Sun Belt Conference — going to compete with the ones that can, such as the SEC?
(Emmert) When you look at a student who’s being recruited by heavily funded institutions, those kids are rarely asking, “Do I go here, or do I go to an institution that has less money?” If students have the opportunity to go to that dominant athletic program, they’re going to go.
(question) So you don’t see it affecting teams in the mid-majors, by virtue of the fact that some athletes will go to a team that can afford that stipend?
(Emmert) I don’t think any of the Butler kids were recruited by, you know, by Kansas.
In another interview, he stated: 10
(question) Is there a concern that the measure will widen the gap between the haves and have-nots in college athletics?
(Emmert) Well, the gap right now is pretty enormous. If you look at the lowest-resourced conference, they spend about $40,000 per year per student-athlete, for all costs in. The SEC (Southeastern Conference) at the top spends roughly four times that, so (about $150,000) per student. So if you’ve got a gap between $40,000 and $150,000, (then) $2,000 isn’t going to make much of a difference.
So the NCAA has said full COA scholarships don’t threaten amateurism (and were allowed for some schools at least for a couple of months) and has also said they also don’t change the current level of (or current lack of) competitive balance among schools. So then from an antitrust perspective, why is a cap below the full COA necessary for any school? In particular, under the $2,000 version of the rule, why is a cap that is well below the cost of attendance for about half of all college athletes justified if a higher cap covering the full COA for all would not threaten “amateurism” or competitive balance.
If the NCAA’s answer is, “Well, but that’s what our members want,” remember that’s not going to cut it from an antitrust perspective. “All the members of our cartel want to fix prices” doesn’t count as a pro-competitive justification; it has to be shown to be necessary to produce the product, not to help keep the costs of the producers down. 11
And if a $2,000 cap on stipends can’t be justified as reasonably necessary, then there seems to be no way a $0 cap would pass muster.
In the end, Emmert admitted that “It could’ve been higher, it could’ve been lower….” 12 That’s a strong admission that the cap that was chosen is not the least restrictive alternative. With its president having admitted there are less restrictive alternatives that would be equally effective, it will be very hard for the NCAA to argue that the alternative that was chosen is reasonable or necessary to produce college football or men’s basketball.
That’s important, because in an antitrust case, that is exactly the sort of rule of reason analysis that would be undertaken. If someone were to sue the NCAA, they would have the statement of the president of the organization admitting the restraint is not reasonably necessary to produce the product at the core of their case. That’s a tough position to defend. And indeed, that’s why I believe that the rule on stipends, whether construed as a $2,000 or $0 cap, violates the antitrust laws of the United States.
I don’t want to say by this analysis that I think college athletes should not get stipends, or that $2,000 doesn’t make a huge difference to some of the recipients. For many college athletes, getting an annual stipend of $2,000 will result in a vast improvement of their economic well-being. And $2,000 is clearly larger than the previous (and current) cap of $0. Rather, I just don’t think you can maintain that full COA scholarships are compatible with the production of college sports and then also maintain you need to cap scholarships below full COA, whether you do this by insisting on the lesser of $2,000 or COA, or by forbidding all stipends. The NCAA has put itself in a position such that, even if one accepts for the sake of argument that some sort of nationwide cap is justifiable under the rule of reason, the one the NCAA has chosen isn’t.
Andy Schwarz is an antitrust economist and partner at OSKR, a firm specializing in economic analysis and expert witness testimony. He publishes the blog Sportsgeekonomics — Musings on Sports Economics (http://sportsgeekonomics.tumblr.com) and tweets as @andyhre.
1. http://en.wikipedia.org/wiki/Rule_of_reason
2. http://www.ncaa.org/wps/wcm/connect/public/ncaa/resources/latest+news/2011/october/di+board+of+directors+adopt+changes+to+academic+and+student-athlete+welfare
3. http://espn.go.com/college-sports/story/_/id/7357868/ncaa-puts-2000-stipend-athletes-hold
4. http://www.thefreelibrary.com/Student+Athletes+Settle+Antitrust+Case+Against+NCAA.-a0182611363
5. For all thirteen of these myths, see Andy Schwarz, “Excuses, Not Reasons: 13 Myths about (Not) Paying College Athletes,” Selected Proceedings of the Santa Clara Sports Law Symposium, Sept. 8, 2011, 46, 67. Also available on the web at http://sportsgeekonomics.tumblr.com/myths.
6. http://espn.go.com/college-sports/story/_/id/7187028/ncaa-stipend-not-lean-pay-play-president-mark-emmert-says
7. http://assets.usw.org/ncpa/Findings.pdf
8. http://sports.espn.go.com/ncaa/news/story?id=6735469
9. http://espn.go.com/college-sports/story/_/id/7303903/ncaa-president-mark-emmert-makes-rulebook-changes-offers-stipends-athletes
10. http://www.chron.com/sports/college/article/NCAA-s-Emmert-says-legislation-won-t-impact-gap-2251444.php
11. See Law v. NCAA, 134 F.3d 1010 (10th Cir. 1998) at 1022: “The NCAA next advances the justification that the plan will cut costs. However, cost-cutting by itself is not a valid procompetitive justification. If it were, any group of competing buyers could agree on maximum prices. Lower prices cannot justify a cartel’s control of prices charged by suppliers, because the cartel ultimately robs the suppliers of the normal fruits of their enterprises.”
12. http://espn.go.com/college-sports/story/_/id/7187028/ncaa-stipend-not-lean-pay-play-president-mark-emmert-says
