NCAA Gets Blown Out in Major Supreme Court Antitrust Decision

The unanimous ruling could pave the way for greatly expanded compensation for college athletes.

 

The NCAA didn't just lose in today's Supreme Court decision in NCAA v. Alston. They got completely blown out. The Court unanimously ruled against them in a major antitrust decision that could end up paving the way for greatly expanded compensation for college athletes. Neither liberal nor conservative justices gave much credence to the NCAA's position that they are a special kind of organization that should not be subject to conventional antitrust restrictions. They showed even less love for the pretense that the NCAA cartel is justified by the needed to protect high-minded ideals of "amateurism."

As Eugene Volokh points out, the one concurring opinion in the case—that of Justice Brett Kavanaugh—highlights the ways in which the ruling has damaging implications for the NCAA that go beyond the specifics of the case.

Below are some key excerpts from Justice Neil Gorsuch's opinion for the Court.

First, Gorsuch emphasizes that NCAA sports is a massive commercial enterprise, which makes it hard to argue that it is merely a nonprofit entity upholding educational ideals and high-minded conceptions of amateurism:

Over the decades, the NCAA has become a sprawling enterprise. Its membership comprises about 1,100 colleges and universities, organized into three divisions… Division I teams are often the most popular and attract the most money and the most talented athletes…..

At the center of this thicket of associations and rules sits a massive business. The NCAA's current broadcast contract for the March Madness basketball tournament is worth $1.1 billion annually. See id., at 1077, n. 20. Its television deal for the FBS conference's College Football Playoff is worth approximately $470 million per year…. Beyond these sums, the Division I conferences earn substantial revenue from regular-season games. For example, the Southeastern Conference (SEC) "made more than $409 million in revenues from television contracts alone in 2017, with its total conference revenues exceeding $650 million that year." D. Ct. Op., at 1063. All these amounts have "increased consistently over the years." Ibid.

Those who run this enterprise profit in a different way than the student-athletes whose activities they oversee. The president of the NCAA earns nearly $4 million per year. Brief for Players Association of the National Football League et al. as Amici Curiae 17. Commissioners of the top conferences take home between $2 to $5 million. Ibid. College athletic directors average more than $1 million annually. Ibid. And annual salaries for top Division I college football coaches approach $11 million, with some of their assistants making more than $2.5 million….

The Court also emphasizes how the NCAA's rules limiting compensation for athletes are presumptively suspect under standard antitrust analysis, because they are a clear example of a monopolistic price-fixing cartel:

Before us, as through much of the litigation below, some of the issues most frequently debated in antitrust litigation are uncontested. The parties do not challenge the district court's definition of the relevant market. They do not contest that the NCAA enjoys monopoly (or, as it's called on the buyer side, monopsony) control in that labor market—such that it is capable of depressing wages below competitive levels and restricting the quantity of student-athlete labor. Nor does the NCAA dispute that its member schools compete fiercely for student-athletes but remain subject to NCAA-issued-and-enforced limits on what compensation they can offer. Put simply, this suit involves admitted horizontal price fixing in a market where the defendants exercise monopoly control.

Other significant matters are taken as given here too. No one disputes that the NCAA's restrictions in fact decrease the compensation that student-athletes receive compared to what a competitive market would yield. No one questions either that decreases in compensation also depress participation by student-athletes in the relevant labor market—so that price and quantity are both suppressed.

The NCAA accepts that its members collectively enjoy monopsony power in the market for student-athlete services, such that its restraints can (and in fact do) harm competition. See D. Ct. Op., at 1067. Unlike customers who would look elsewhere when a small van company raises its prices above market levels, the district court found (and the NCAA does not here contest) that student-athletes have nowhere else to sell their labor.

The Court goes on to reject the NCAA's argument that it should be exempted from standard antitrust "rule of reason" review because it is a joint venture:

Nor does the NCAA's status as a particular type of venture categorically exempt its restraints from ordinary rule of reason review. We do not doubt that some degree of co-ordination between competitors within sports leagues can be procompetitive. Without some agreement among rivals—on things like how many players may be on the field or the time allotted for play—the very competitions that consumers value would not be possible…. Accordingly, even a sports league with market power might see some agreements among its members win antitrust approval in the "'twinkling of an eye.'" American Needle, 560 U. S., at 203. But this insight does not always apply. That some restraints are necessary to create or maintain a league sport does not mean all "aspects of elaborate interleague cooperation are." Id., at 199, n. 7….

The NCAA's rules fixing wages for student-athletes fall on the far side of this line….

Finally, the justices also reject claims that the NCAA's rules are immune from scrutiny because they promote "amateurism":

The NCAA submits that a rule of reason analysis is inap­propriate for still another reason—because the NCAA and its member schools are not "commercial enterprises" and instead oversee intercollegiate athletics "as an integral part of the undergraduate experience." Brief for Petitioner in No. 20–512, at 31. The NCAA represents that it seeks to "maintain amateurism in college sports as part of serving [the] societally important non-commercial objective" of" higher education." Id., at 3….

The NCAA does not contest that its re­straints affect interstate trade and commerce and are thus subject to the Sherman Act. See D. Ct. Op., at 1066. The NCAA acknowledges that this Court already analyzed (and struck down) some of its restraints as anticompetitive in Board of Regents. And it admits, as it must, that the Court did all this only after observing that the Sherman Act had already been applied to other nonprofit organizations—and that "the economic significance of the NCAA's nonprofit character is questionable at best" given that "the NCAA and its member institutions are in fact organized to maximize revenues." 468 U. S., at 100–101, n. 22….

With this much agreed it is unclear exactly what the NCAA seeks. To the extent it means to propose a sort of judicially ordained immunity from the terms of the Sher­man Act for its restraints of trade—that we should overlook its restrictions because they happen to fall at the intersec­tion of higher education, sports, and money—we cannot agree. This Court has regularly refused materially identi­cal requests from litigants seeking special dispensation from the Sherman Act on the ground that their restraints of trade serve uniquely important social objectives beyond enhancing competition…

While the NCAA asks us to defer to its conception of amateurism, the district court found that the NCAA had not adopted any consistent definition. Id., at 1070. Instead, the court found, the NCAA's rules and re­strictions on compensation have shifted markedly overtime. Id., at 1071–1074. The court found, too, that the NCAA adopted these restrictions without any reference to "considerations of consumer demand," id., at 1100, and that some were "not necessary to preserve consumer demand," id., at 1075, 1080….

In other words, the Court was utterly unpersuaded by claims that promoting "amateurism" gives the NCAA exemption from normal antitrust scrutiny, especially when the NCAA's conception of what amateurism requires seems to shift over time, in self-serving ways. The theory that "amateurism" is whatever the NCAA says it is gets no love from the Court.

While Justice Gorsuch carefully emphasizes that today's ruling only applies to education-related compensation for student athletes, it's hard to deny that the same reasoning applies to NCAA restrictions on other types of compensation for student athletes, as well. At the very least, ordinary "rule of reason" analysis now applies to the latter, no less than the former. And it will not be easy for the NCAA to show that its cartel system is actually "procompetitive," given its own admission that member schools have a monopoly in the relevant market.

There is a small ray of hope for the NCAA in the Court's statement that there may be reason to uphold restrictions on forms of compensation that "blur the distinction be­tween college and professional sports and thus impair de­mand." But to prevail on that basis, the NCAA would have to show that such payments really do reduce demand, and thus are necessary to enhance the quality of product, as understood by consumers. I suspect that, in this day and age, most college sports fans don't actually care whether the players for their favorite team get paid or not. They might even be happy to see such payments occur, if it means the school gets better players.

However, I admit there may be an angle I am overlooking here. This issue is sure to be litigated in the future. We will see whether the NCAA can use it to prop up its otherwise collapsing position.

The concurring opinion by Justice Brett Kavanaugh emphasizes that "although the Court does not weigh in on the ultimate legality of the NCAA's remaining compensation rules,the Court's decision establishes how any such rules should be analyzed going forward. After today's decision, the NCAA's remaining compensation rules should receive ordinary 'rule of reason' scrutiny under the antitrust laws." He also points out that "there are serious questions whether the NCAA's remaining compensation rules can pass muster under ordinary rule of reason scrutiny. 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."

He goes on to summarize the flaws in the NCAA's rationale for its restrictions:

The NCAA acknowledges that it controls the market for college athletes. The NCAA concedes that its compensation rules set the price of student athlete labor at a below-market rate. And the NCAA recognizes that student athletes currently have no meaningful ability to negotiate with the NCAA over the compensation rules.

The NCAA nonetheless asserts that its compensation rules are procompetitive because those rules help define the product of college sports. Specifically, the NCAA says that colleges may decline to pay student athletes because the defining feature of college sports, according to the NCAA, is that the student athletes are not paid.

In my view, that argument is circular and unpersuasive. The NCAA couches its arguments for not paying student athletes in innocuous labels. But the labels cannot disguise the reality: The NCAA's business model would be flatly illegal in almost any other industry in America. All of the restaurants in a region cannot come together to cut cooks' wages on the theory that "customers prefer" to eat food from low-paid cooks. Law firms cannot conspire to cabin lawyers' salaries in the name of providing legal services out of a "love of the law…"

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.

The bottom line 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. College presidents, athletic directors, coaches, conference commissioners, and NCAA executives take in six- and seven-figure salaries. Colleges build lavish new facilities. But the student athletes who generate the revenues, many of whom are African American and from lower-income backgrounds, end up with little or nothing.

For now, this is just one justice's opinion, and therefore not binding precedent. But I think it's hard to deny that Kavanaugh is right about the implications of the majority opinion for other NCAA compensation restrictions.

Even if NCAA restrictions on paying student athletes are abolished, many college sports will be largely unaffected. Sports like rugby, lacrosse, and wrestling are likely to see few or no changes. Because athletes in these sports produce little or no revenue or publicity for their schools, the latter will have little, if any, incentive to compete for them by increasing compensation. But there may well be big changes for revenue-producing sports, particularly the big ones, like Division I football and basketball.

Absent the NCAA cartel, competitive pressure would likely incentivize schools to pay athletes a much higher percentage of the proceeds from these sports. For all the high-minded talk of amateurism and educational principles, that's what this litigation is really about.

In line with many economists and law and economics scholars, I have long advocated the abolition of NCAA restrictions on athlete compensation. See here, here, and here, and links to earlier pieces by economists David Henderson and Nobel Prize-winner Gary Becker. It's worth noting that these NCAA restrictions are not just a private cartel, but one backed by federal government policy denying certification to schools that refuse to obey NCAA rules restricting compensation for student athletes.

Today's decision dealt the NCAA cartel a serious blow. It remains to be seen whether the wound turns out to be fatal.