Supreme Court Finds NCAA Engaged in Antitrust Violations by Limiting Education-Related Benefits to Student-Athletes
June 29, 2021
By: Stephen B. Stern
In National Collegiate Athletic Association v. Alston, No. 20-512 (U.S. June 21, 2021), the United States Supreme Court upheld a district court’s ruling that the National Collegiate Athletic Association (“NCAA”) violated Section 1 of the Sherman Act by imposing “undue” restrictions on education-related benefits for student-athletes.
In Alston, current and former student-athletes who play or played Division 1 FBS football and men’s and women’s Division 1 basketball filed a class action lawsuit against the NCAA and 11 Division 1 athletic conferences that challenged the “current, interconnected set of NCAA rules that limit the compensation [the student-athletes] may receive in exchange for their athletic services[,]” contending that the NCAA’s rules violated Section 1 of the Sherman Act, which prohibits “contract[s], combination[s], or conspiracy[ies] in restraint of trade or commerce.”
The Court started its analysis by reviewing a lengthy history of college athletics and the various forms of compensation that have been provided to student-athletes. Then the Court proceeded to describe the lengthy ruling of the district court, which conducted a 10-day bench trial and issued a 50-page opinion. When determining whether a restraint of trade is “undue,” the district court noted that it must apply a “rule of reason” that requires a “fact-specific assessment of market power and market structure” to assess the restraint’s “actual effect on competition.” To this end, the district court found that the NCAA and its member schools have the “power to restrain student-athlete compensation in any way and at any time they wish, without any meaningful risk of diminishing their market dominance.” This power resulted in “significant anticompetitive effects[,]” as the NCAA uses its “monopsony power to ‘cap artificially the compensation offered to recruits.’” The district court concluded that if these restraints did not exist in the marketplace, “competition among schools would increase in terms of the compensation they would offer to recruits, and student-athlete compensation would be higher as a result.” Despite this conclusion, the district court entertained the NCAA’s contention that its practices help promote competition by maintaining a competitive balance in amateur sports, which increased consumer demand. Ultimately, the district court concluded these price-fixing agreements were reasonable in light of the possibility that “professional-level cash payments . . . could blur the distinction between college sports and professional sports and thereby negatively affect consumer demand.” The district court reached a different conclusion, however, regarding the NCAA’s limits on education-related benefits (e.g., rules that limit scholarships for graduate or vocational school, payments for academic tutoring, and paid post-eligibility internships). In this regard, the district court found that these benefits cannot be “confused with a professional athlete’s salary.” The district court further concluded that enjoining these restrictions would be substantially less restrictive than the current rules and it would allow the NCAA to preserve consumer demand for college sports. Thus, the district court entered an injunction prohibiting the NCAA from capping the education-related benefits. Both sides appealed, and the federal appellate court upheld the district court’s rulings. The NCAA then petitioned the Supreme Court.
The NCAA took issue with the district court’s determination that a rule of reason analysis should be applied to its compensation restrictions and, instead, advocated for an “abbreviated deferential review.”
First, the NCAA argued it is a joint venture and collaboration among its members is necessary to offer consumers the benefits of intercollegiate sports. Even if the NCAA were a joint venture, the Court noted that alone does not allow the NCAA the benefit of an abbreviated review and, moreover, most antitrust cases under the Sherman Act, including those involving joint ventures, are subject to the rule of reason analysis. The Court also agreed with the district court’s finding that, even if the NCAA were a joint venture, the fact that student-athletes have nowhere else to sell their labor gives the NCAA substantial market influence that precludes a “quick-look approval” of its rules and regulations.
Next, the Court addressed the NCAA’s reliance on prior Supreme Court precedent, where the NCAA contended the Court’s decision in National Collegiate Athletic Ass’n v. Board of Regents of Univ. of Okla., 468 U.S. 85 (1984), approved the NCAA’s limits on student-athlete compensation. The Court rejected this argument, explaining that the Board of Regents decision addressed the NCAA’s television rules that amounted to “[h]orizontal price fixing and output limitation[s]” that ordinarily are “illegal per se[,]” and it did not find they were per se unlawful only because they arose in an industry where some “horizontal restraints on competition are essential if the product is to be available at all.” As a result, the Court’s finding in Board of Regents did not endorse or approve the NCAA’s limitations on compensation to student-athletes. Indeed, the Court explained that the student-athlete compensation rules were not even at issue in Board of Regents.
The Court then addressed another argument by the NCAA that a rule of reason analysis was improper. According to the NCAA, it and its member schools are not “commercial enterprises;” rather, they oversee intercollegiate athletics “as an integral part of the undergraduate experience” and seek to “maintain amateurism in college sports as part of serving [the] societally important noncommercial objective” of “higher education.” The Court, however, noted that the NCAA undermined its own argument by acknowledging that its restraints affect interstate trade and commerce, thereby subjecting it to Sherman Act review. And this argument was further undermined by the fact that other nonprofits (assuming the NCAA was indeed a nonprofit, as “the economic significance of the NCAA’s nonprofit character is questionable at best” considering the NCAA and its members seek to “maximize revenues”) have been subjected to Sherman Act review.
The NCAA also challenged the district court’s application of the rule of reason analysis. To this end, the NCAA noted that the rule of reason analysis typically involves a three-step burden shifting analysis that was not followed in this case. The Court, however, noted the three-step analysis “do[es] not represent a rote checklist” and it should not “be employed as an inflexible substitute for careful analysis.” Rather, the rule of reason analysis “can vary depending on the circumstances” and the Court found that the district court’s analysis in this case was proper under the circumstances. Most telling to the Supreme Court was the fact that once the district court found that the NCAA carried its burden of showing that its restraints resulted in some procompetitive effects, the student-athletes in turn demonstrated that “there are substantially less restrictive alternative rules that would achieve the same procompetitive effect as the challenged set of rules” (and those being less restrictive restraints on education-related benefits).
Lastly, the NCAA attacked the district court’s ruling by contending that the injunction threatened to “micromanage” its business. The Court agreed this general legal principle existed and noted, among other things, that “[j]udges must be sensitive to the possibility that the ‘continuing supervision of a highly detailed decree’ could wind up impairing rather than enhancing competition.” Nevertheless, the Court concluded that the district court did not overreach, as the district court enjoined restraints only on education-related benefits, such as those limiting scholarships for graduate school and payments for tutors. Moreover, in enjoining these restraints, the district court granted the NCAA latitude by allowing it to develop its own definition of benefits that relate to education and later seek modification to the district court’s injunction to reflect the definition. Even then, the injunction still permitted the NCAA to continue to restrict compensation from sneaker companies, automobile dealerships, boosters, and others.
It is unclear how far the Supreme Court’s decision in Alston will reach. On the one hand, the Court’s decision in Alston seems primarily focused on the NCAA in that it likely will result in changes to how college athletes are compensated, and there may be some corresponding effects on businesses in industries that are substantially related to college athletics. On the other hand, it is unclear how future antitrust cases will be influenced by the Court’s decision in Alston. For example, the Court appeared to emphasize the three-step burden shifting rule of reason analysis is not to be applied rigidly and trial courts have substantial discretion to conduct an analysis based on the facts and circumstances of each particular case.