By Gary J. Chester, Senior Writer
For decades, some sports law scholars and economists have characterized the NCAA as an illegal cartel engaging in anticompetitive conduct that is unfair to student-athletes.
On June 21, 2021, the U.S. Supreme Court confirmed those allegations.
In a landmark 9-0 ruling in NCAA v. Alston, 594 U.S. ___ (2021), the Court held that the NCAA’s scheme to limit compensation to student-athletes in the name of amateurism violates section 1 of the Sherman Act. The opinion, written by Justice Neil Gorsuch, praised both the Ninth Circuit and the trial court that had ruled in favor of the student-athletes.
PROCEDURAL HISTORY
Student-athletes won a huge victory in O’Bannon v. NCAA, 802 F.3d 1049 (9th Cir. 2015), where the Ninth Circuit affirmed in large part a district court’s ruling that the NCAA illegally restrained trade, in violation of section 1 of the Sherman Act, by preventing FBS football and Division I men’s basketball players from receiving compensation for the use of their names, images, and likenesses (NILs). The court also affirmed the district court’s injunction which required the NCAA to permit athletic scholarships covering the full cost of attendance.
Alston is a consolidation of multiple actions brought by current and former student-athletes in men’s Division I FBS football and men’s and women’s Division I basketball. The case was decided after a bench trial before Judge Claudia Wilken (who also decided O’Bannon). The district court ruled that NCAA limits on education-related benefits such as private tutoring and laptop computers were unreasonable restraints of trade and that the athletic conferences could set different standards. But the court found that the NCAA limits on compensation unrelated to education are lawful.
On appeal, the Ninth Circuit in 2020 held that the circuit court properly applied the rule of reason in determining that the NCAA’s limits on education-related compensation constituted unlawful restraints of trade under section 1. In re NCAA Athletic Grant-in-Aid Cap Antitrust Litig., 958 F. 3d 1239 (CA9 2020). [The rule of reason is one of three ways to analyze alleged anticompetitive conduct; it is a fact-specific assessment of market power and market structure to determine if a restraint restricts competition.]
The appeals court found that only the NCAA’s rules restricting non-educational benefits and certain academic or graduation awards were reasonably related to the procompetitive goal of improving consumer choice by maintaining a distinction between college and professional sports. (In other words, the NCAA can prohibit payments to athletes that are unrelated to their education, but it cannot restrict colleges from offering private tutoring, computers, post-graduate scholarships, and other education-based benefits as part of an athletic scholarship.)
The NCAA appealed to the Supreme Court, asserting that it is immune from the normal operation of antitrust law and that, in any event, the district court should have approved each of the NCAA’s restraints on student-athlete compensation.
THE OPINION
The Supreme Court’s 36-page opinion essentially begins with a brief history of the intersection of commercialism and college sports. It recounts the first intercollegiate competition: an 1852 boat race at Lake Winnipesaukee, New Hampshire between students from Harvard and Yale. The event was sponsored by a railroad executive who sought to promote train travel to the picturesque lake.
Justice Gorsuch discusses the 1929 Carnegie Foundation report that found college athletics to be overridden with commercial interests. He recounts the NCAA Sanity Code adopted in 1948 to authorize universities to pay athletes’ tuition while simultaneously enabling member institutions to limit the amount of compensation granted to student-athletes. The history concludes with the observation that the NCAA in 2014 first permitted conferences to allow “member schools to increase scholarships up to the full cost of attendance.”
The Court notes that the NCAA accepted that its members enjoy a monopsony (a buyer’s monopoly) in the market for student-athlete services and that its restraints harm competition. It was uncontested that “student-athletes have nowhere else to sell their labor.”
A primary NCAA position was that its objective of preserving amateurism in college sports called for a standard of antitrust scrutiny that was less restrictive than the customary “rule of reason.” The NCAA relied on dicta in National Collegiate Athletic Assn. v. Board of Regents of Univ. of Oklahoma, 468 U.S. 85 (1984) (NCAA’s television contracts with two networks held anticompetitive), wherein the Court recognized that the NCAA is given latitude to promote amateurism in college sports. But the Court rejected the notion that it should use a “quick look” standard to summarily declare the NCAA’s limits on athletic scholarships to be lawful.
Justice Gorsuch proceeds to address three main objections that the NCAA raised.
The first is that member institutions will abuse the district court’s inclusion of paid post eligibility internships as an approved education-related benefit that colleges can offer as part of a scholarship package. The NCAA imagines that boosters will promise internships “at a sneaker company or auto dealership with extravagant salaries.” The Court states that the NCAA’s reading of the district court’s ruling was too broad, as it did not preclude “NCAA rules prohibiting its members from providing compensation or benefits unrelated to legitimate educational activities─thus leaving the league [conferences] room to police phony internships.”
Second, the NCAA asserted that the trial court’s ruling that it may fix academic awards at a level no lower than the limit on athletic awards (currently $5,980 per year) is the equivalent of a professional salary. The fear is that colleges will pay players thousands of dollars each year for minimal achievements such as a passing GPA. The Court stated: “The basis for this critique is unclear. The NCAA does not believe that the athletic awards it presently allows are tantamount to a professional salary…[and] the NCAA [is] free to reduce its athletic awards.”
Third, the NCAA is said to overstate concerns over in-kind educational benefits, fearing that schools will offer items much more valuable than graduate scholarships, laptops, and tutoring. But the Court stated that “the NCAA is free to forbid in-kind benefits unrelated to a student’s actual graduation; nothing stops it from enforcing a ‘no Lamborghini’ rule.”
Gorsuch concludes the opinion by recognizing that some will think the district court did not go far enough in assisting student-athletes who generate millions in revenue each year for their universities, while others will believe the courts have undervalued the social benefits associated with amateur sports. He states: “For our part, though, we can only agree with the Ninth Circuit: “‘The national debate about amateurism in college sports is important. But our task as appellate judges is not to resolve it. Nor could we. Our task is simply to review the district court judgment through the appropriate lens of antitrust law.’”
THE CONCURRENCE
Justice Brett Kavanaugh’s five-page concurring opinion fires an uncustomary warning shot at the NCAA. He observes that “the NCAA has long shielded its compensation rules from ordinary antitrust scrutiny. Today, however, the Court holds that the NCAA has violated the antitrust laws. The Court’s decision marks an important and overdue course correction, and I join the Court’s excellent opinion in full.”
Kavanaugh discusses the compensation rules restricting student-athletes from profiting from their NILs, writing that those rules “also raise serious questions under antitrust law…Under the rule of reason, the NCAA must supply a legally valid procompetitive justification for its remaining compensation rules. As I see it, however, the NCAA may lack such a justification.”
The concurrence debunks the NCAA’s rationale that the defining feature of college sports is that student-athletes are not paid. Kavanaugh asserts that the NCAA’s business model would be flatly illegal in almost any other industry in America.
“The bottom line,” Kavanaugh states, “is that the NCAA and its member colleges are suppressing the pay of student athletes who collectively generate billions of dollars in revenues for colleges every year. Those enormous sums of money flow to seemingly everyone except the student athletes.”
Kavanaugh observes that many of the athletes who generate substantial revenues are African American and from lower-income backgrounds and “end up with little or nothing.” He recognizes that compensating student-athletes raises Title IX and other concerns, suggesting that the universities and student-athletes could work to resolve the issues through collective bargaining.
The concurrence concludes: “Nowhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate. And under ordinary principles of antitrust law, it is not evident why college sports should be any different. The NCAA is not above the law.”
THE TAKEAWAY
- Alston is a huge win for student-athletes, but not a total loss for the NCAA. The ruling affirms the district court’s finding that the NCAA could prohibit payments to student-athletes that are unrelated to education because differentiating college sports from pro sports promotes competition and broadens consumer choice.
- The decision continues the erosion of NCAA authority over intercollegiate athletics that had begun in previous antitrust cases such as Bd. of Regents (cited above), which shifted authority over TV contracts from the NCAA to the various conferences, and Law v. NCAA, 902 F. Supp. 1394 (D. Kan. 1995), which held that the NCAA cannot lawfully place limits on the salaries that colleges pay to assistant coaches. The result is that much power has shifted from the NCAA to the athletic conferences and individual universities.
