Supreme Court to NCAA: You are Not Immune from Antitrust Laws

On June 21, the U.S. Supreme Court issued a unanimous ruling in National Collegiate Athletic Association v. Alston (Alston) in which the nation’s highest court affirmed an injunction entered by the Northern District of California prohibiting the NCAA from restricting education-related benefits that member schools can extend to student-athletes. Consolidated by the Supreme Court last December with related proceedings in American Athletic Conference v. Alston, this decision brings a close to the latest chapter in the ongoing skirmish between NCAA member schools and their student-athletes seeking a larger cut of revenues earned by colleges and NCAA athletic associations.

Injunction Against NCAA is Latest Chapter in Complicated History of Student-Athlete Compensation

The early pages of the Supreme Court opinion, authored by Justice Neil Gorsuch, trace an interesting and oft-forgotten history of the tension between amateur collegiate sports and the box office revenues drawn by colleges thanks to the incredible popularity of their athletic competitions. Football games between Princeton and Yale were drawing $25,000 in gate revenues by the 1880s and colleges used those funds to attract mercenary players like Fielding H. Yost, who transferred to Lafayette College for one week in 1896 to defeat the school’s archrival and then returned to West Virginia University, where he was studying as a law student. A string of violent deaths among collegiate football players during the first decade of the 1900s led to the development of the NCAA as a standards-setting body for collegiate sports. The NCAA in its earliest days discouraged pay for student-athletes but this policy would lack teeth until the organization passed the Sanity Code in 1948, which provided an enforcement mechanism to suspend programs violating prohibitions against student-athlete pay.

The underlying district court litigation was based on class action claims filed by current and former student-athletes alleging violations of Section 1 of the Sherman Antitrust Act by the NCAA’s limits on student-athlete compensation; although an antitrust case, commentators have pointed out that the issues in Alston mirror many of the intellectual property rights issues involved in the push to secure name, image and likeness (NIL) rights for professional and collegiate athletes. Applying a “rule of reason” analysis assessing both market power and market structure, the district court found that the NCAA’s compensation limits produces significant anticompetitive effects because the NCAA’s monopsony power prevents schools from more aggressively competing for student-athlete recruitment.

Ultimately, the district court found no Sherman Act violation from NCAA limits to athletic scholarships and non-education-related compensation; these price-fixing agreements were reasonable because professional pay could blur the distinction between collegiate and professional sports, reducing consumer demand. However, the district court enjoined NCAA restrictions on education-related benefits, like vocational or graduate school scholarships or payments for academic tutoring, as these benefits emphasized the recipients’ status as students. Both sides appealed to the U.S. Court of Appeals for the Ninth Circuit, which affirmed the grant of injunctive relief, before the NCAA appealed the district court’s application of the rule of reason analysis to the collegiate athletic organization’s compensation limits.

Gorsuch: ‘Rule of Reason’ Analysis Required ‘More Than a Blink to Answer’

On appeal to the Supreme Court, the NCAA argued that the district court should have recognized that its compensation restrictions were only subject to “abbreviated deferential review” or “quick look” review because its joint venture status requires collaborative agreements to make intercollegiate athletic competitions available. While the Supreme Court “doubt[ed] little” of the need for such agreements, the Supreme Court noted that joint venture status doesn’t guarantee easier review under the Sherman Act:

As the NCAA observes, this Court has suggested that sometimes we can determine the competitive effects of a challenged restraint in the ‘“twinkling of an eye…”’ That some restraints are necessary to create or maintain a league sport does not mean all ‘aspects of elaborate interleague cooperation are…’ Nobody questions that Division I basketball and FBS football can proceed (and have proceeded) without the education-related compensation restrictions the district court enjoined; the games go on. Instead, the parties dispute whether and to what extent those restrictions in the NCAA’s labor market yield benefits in its consumer market that can be attained using substantially less restrictive means. That dispute presents complex questions requiring more than a blink to answer.

The Supreme Court proceeded to diminish the NCAA’s reliance on the Court’s 1984 decision in NCAA v. Board of Regents of the University of Oklahoma, which the NCAA argued expressly approved the organization’s student-athlete compensation limits. “While Board of Regents did not condemn the NCAA’s broadcasting restraints as per se unlawful, it invoked abbreviated antitrust review as a path to condemnation, not salvation,” Justice Gorsuch wrote. “ If a quick look was thought sufficient before rejecting the NCAA’s procompetitive rationales in that case, it is hard to see how the NCAA might object to a court providing a more cautious form of review before reaching a similar judgment here.” While the 1984 decision assumed that the NCAA’s regulatory controls had procompetitive results, changes in market realities since that decision, including NCAA increases to student-athlete benefits, required a more thorough analysis of the fact-specific antitrust inquiry at issue. The Supreme Court also struck down the NCAA’s arguments that maintaining amateurism served the societally important non-commercial objective of higher education, noting that although the Court once “dallied with something that looks a bit like an antitrust exemption” for professional sports in Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs (1922), other cases like Board of Regents made it clear that the NCAA itself is subject to the Sherman Act, which “is predicated on one assumption alone—’competition is the best method of allocating resources’ in the Nation’s economy,” Justice Gorsuch wrote.”

District Court Injunction Reserved Considerable Leeway for NCAA

The last 10 pages of Gorsuch’s opinion dismissed the NCAA’s arguments that the district court misapplied its rule of reason analysis, particularly in the second step of the analysis after the plaintiff student-athletes met their burden to show anticompetitive effects in the challenged compensation restraints. While the Supreme Court agreed with the NCAA’s legal argument that the district court had only to find that the restraints produced procompetitive effects collectively, instead of requiring arguments on procompetitive effects for each challenged restraint, the Supreme Court noted that the factual record showed that the NCAA failed to establish a direct connection between the restraints and consumer demand. Ultimately, judgment rested on the third step of the rule of reason analysis, in which the plaintiff student-athletes proved that the NCAA could achieve its alleged procompetitive benefits with substantially less restrictive restraints on education-related benefits.

The NCAA also argued that the district court’s rule of reason analysis impermissibly redefined the NCAA’s product by rejecting defendant’s view of amateurism, but the Supreme Court found this to be relabeling a restraint as a product feature to escape Sherman Act review and pointed to the district court’s finding that the NCAA didn’t adopt a consistent definition of amateurism during trial. Finally, although the NCAA contended that the injunction threatened to micromanage the organization, the Supreme Court found that the district court allowed considerable leeway to the NCAA for fixing education-related cash awards, so long as limits on those awards were not lower than limits for athletic performance awards. Nor did the Court find any issue with giving individual schools greater leeway on extending educational-related benefits:

[T]he NCAA fears schools might exploit this authority to give student-athletes ‘“luxury cars”’ ‘to get to class’ and ‘other unnecessary or inordinately valuable items’ only ‘nominally’ related to education… [H]owever, this over-reads the injunction in ways we have seen and need not belabor. Under the current decree, the NCAA is free to forbid in-kind benefits unrelated to a student’s actual education; nothing stops it from enforcing a ‘no Lamborghini’ rule. And, again, the district court invited the NCAA to specify and later enforce rules delineating which benefits it considers legitimately related to education.

Justice Kavanaugh: ‘Price-Fixing Labor is Price-Fixing Labor’

In a concurring opinion, Justice Brett Kavanaugh emphasized several points regarding the NCAA’s remaining compensation rules, which weren’t at issue in the ruling because they weren’t appealed by plaintiff student-athletes after the Ninth Circuit’s decision. Justice Kavanaugh noted that the decision in Alston “makes clear that the decades-old ‘stray comments’ about college sports and amateurism made in [Board of Regents] were dicta and have no bearing on whether the NCAA’s current compensation rules are lawful.” Thus Alston confirms that other NCAA compensation rules would be subject to rule of reason analysis, of which Justice Kavanaugh was skeptical that those unchallenged restraints could pass muster:

The NCAA’s business model would be flatly illegal in almost any other industry in America… Price-fixing labor is price-fixing labor. And price-fixing labor is ordinarily a textbook antitrust problem because it extinguishes the free market in which individuals can otherwise obtain fair compensation for their work… Businesses like the NCAA cannot avoid the consequences of price-fixing labor by incorporating price-fixed labor into the definition of the product. Or to put it in more doctrinal terms, a monopsony cannot launder its price-fixing of labor by calling it product definition.

While Justice Kavanaugh acknowledged that court rulings finding other NCAA compensation rules to violate antitrust laws would create practical issues in administering fair compensation to student-athletes, those issues could be resolved through Congressional legislation or collective bargaining between student-athletes and the NCAA. “Regardless of how those issues ultimately would be resolved, however, the NCAA’s current compensation regime raises serious questions under the antitrust laws,” Justice Kavanaugh wrote.

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Author: JanPietruszka
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