The ruling bodes poorly for the NCAA’s ability to defend its rules in future cases.
The ruling bodes poorly for the NCAA’s ability to defend its rules in future cases.
T he NCAA has a variety of rules against college sports teams paying their players. The Supreme Court this morning, in NCAA v. Alston, unanimously struck down a few of those rules, and the reasoning of Justice Neil Gorsuch’s opinion calls many of the others into question by rejecting the NCAA’s argument that it should be treated differently from any other price-fixing business.
If Gorsuch’s opinion was measured, Justice Brett Kavanaugh’s concurring opinion in the case was much blunter in drawing up a road map for future challenges: “Price-fixing labor is price-fixing labor. . . . The NCAA’s business model would be flatly illegal in almost any other industry in America.” That bodes poorly for the NCAA’s ability to defend its rules in future cases.
The Rules at Stake
Alston came out of a lawsuit under the Sherman Antitrust Act by football and basketball players challenging a number of NCAA rules. The players argued that the NCAA is, in effect, a price-fixing cartel with the monopoly power to prevent its members from competing to pay players what they would earn in a free market. The players lost some of those challenges in the lower courts. By the time the NCAA had appealed Alston to the Supreme Court, the only rules at issue were the ones the Ninth Circuit had struck down.
The Court rejected all of the NCAA’s arguments, retreating from the more deferential posture it had taken toward NCAA rules in a prior case in 1984. Going forward, the NCAA will have to defend more antitrust lawsuits that test the limits of Alston.
Specifically, after a ten-day trial, the district court concluded that the NCAA met the criteria for an antitrust suit under the Sherman Act: It was engaged in commerce, it had monopoly market power, and its rules restrained trade. That is not the end of a Sherman Act case, however; a monopoly can argue that it has legitimate commercial reasons for a restraint of trade, and the Sherman Act authorizes courts to decide, under the “rule of reason,” whether those justifications are reasonable.
The district court divided the challenged rules into two classes. It upheld NCAA rules restricting players from “professional-level cash payments,” on the theory that the NCAA has a legitimate interest in maintaining the connection between the players and academic attendance at their schools. Under that theory, if schools could just hire ringers, their teams would lose even the pretense of being student-athletes, and fans would sour on college sports. But the trial court struck down rules limiting academic-related benefits such as graduate-school scholarships, postgraduate internships, tutoring, and vocational scholarships. Given how the NCAA has gradually liberalized some of its rules over time, these are not earth-shaking changes — but the legal precedent of a court ordering it could call the broader structure of NCAA rules into question. That’s why the NCAA appealed.
No Excuses for an Unfree Market
Gorsuch’s analysis of the case began with the obvious: that the rules take money out of the pockets of the players in favor of the colleges:
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.
By contrast, he noted that the big business of college sports — i.e., the NCAA basketball tournament brings in over a billion dollars a year, and the football playoffs bring in almost half a billion — has plenty of money to pay in salaries when it has to compete in a free market. The NCAA’s president makes $4 million a year, conference commissioners make $2 to $5 million, top football coaches make as much as $11 million a year, and even some assistants may take home millions.
What the NCAA asked the Court to do was to give it special treatment. First, it argued that it should get wider latitude for joint rules because it is a joint venture. Under this theory, only a deferential “quick look” would be needed to dispose of most antitrust lawsuits against its rules, because joint ventures need to be able to cooperate or they can’t function. The main importance of Alston is that every justice agreed that the NCAA should instead have to defend its rules under the rule of reason like any other business.
The Court noted that deferential rules for joint ventures are just a species of the rule of reason, and do not rescue a joint venture from scrutiny if — like the NCAA — it has monopoly market power. Moreover, while the Court agreed that some joint rules are necessary to maintain a sports league, “the NCAA’s rules fixing wages for student-athletes fall on the far side of this line.”
The NCAA’s next argument for avoiding judicial review of its rules was that the Court’s own 1984 decision in NCAA v. Board of Regents of University of Oklahoma limited antitrust review of NCAA rules. Board of Regents had nothing to do with rules restricting payments to students; it involved NCAA rules against individual schools cutting their own broadcast deals. The Court noted that these were more the kinds of rules that are necessary for a joint venture to act together. Also, as Gorsuch noted, the economics of the NCAA’s market power even in the TV market has changed a lot since 1984, and unlike a lot of areas of the law where Congress writes unchanging definitions, antitrust law requires judge-made rules to evolve with the times.
Finally, the NCAA claimed that the educational mission of colleges should entitle them to more deferential treatment — a common view of the world from the ivory tower of college campuses these days. But the Court was having none of it:
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.
Strike Two?
In fact, the Court went so far as to invite a possible challenge to the one such exemption it granted long ago: the one for Major League Baseball:
To be sure, this Court once dallied with something that looks a bit like an antitrust exemption for professional baseball. In Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs, (1922), the Court reasoned that “exhibitions” of “base ball” did not implicate the Sherman Act because they did not involve interstate trade or commerce — even though teams regularly crossed state lines (as they do today) to make money and enhance their commercial success. . . . But this Court has refused to extend Federal Baseball’s reasoning to other sports leagues — and has even acknowledged criticisms of the decision as “‘unrealistic’” and “‘inconsistent’” and “aberration[al].” Flood v. Kuhn, (1972). [Citations omitted]
The Court has typically taken the view that revisiting the baseball exemption is a matter for Congress, given how long the decision has been on the books — it quotes here the line from Flood making that point — but the unanimous Court’s evident hostility to the exemption seems likely to encourage a lawsuit arguing that the economics of baseball have changed a lot since 1922, too.
Unreasonable Restraints
The Court then turned to the specific question: Given that the players could show obvious anticompetitive effects, was there a reasonable basis for the NCAA’s rules limiting even forms of compensation that have some connection to education?
(A brief antitrust-law aside here: The Court declined to wade into the broader question of whether restrictions on a competitive market for labor and other inputs can be justified, under the rule of reason, by pointing to benefits on the other side of the market — the consumer side. The players argued the case on the assumption that the NCAA could try to defend its rules on the basis of such justifications.)
The NCAA’s only real argument was that consumers of college sports want to see amateur student-athletes, and therefore it benefits the business of college sports to restrict payments to the players. The trial court did not buy the argument that the fans actually care about whether the players receive graduate-school or vocational scholarships. Even granting that courts have to give a good deal of latitude to businesses to decide the exact details of their rules — and that judges are no substitute for the market — the Court did not buy it either. The Court rejected the NCAA’s specific worry that paid internships would allow for easily circumventing its rules against paying players, noting that the NCAA was still allowed to ban paid internships offered by outside businesses such as sneaker companies and car dealerships.
Kavanaugh’s Roadmap
In the end, the relief the Court upheld is fairly narrow. College athletes are still nowhere near being able to extract the full economic value of their labor in the way that college coaches are. But by bulldozing so many of the NCAA’s defenses, Alston could pave the way for broader challenges. That is the point of Kavanaugh’s scorching separate opinion. Kavanaugh agreed with everything in Gorsuch’s opinion, which he characterized as “an important and overdue course correction,” but he also warned: “The NCAA’s remaining compensation rules also raise serious questions under the antitrust laws.”
As Kavanaugh noted, the NCAA must now defend the rest of its rules under the same rule of reason analysis as any other business, shorn of any special defenses for the nature of its business. And that will be hard to do:
The NCAA . . . 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.” Hospitals cannot agree to cap nurses’ income in order to create a “purer” form of helping the sick. News organizations cannot join forces to curtail pay to reporters to preserve a “tradition” of public-minded journalism. Movie studios cannot collude to slash benefits to camera crews to kindle a “spirit of amateurism” in Hollywood.
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.
Kavanaugh’s conclusion, similarly drenched in Lincolnesque free-labor ideology, is damning:
To be sure, the NCAA and its member colleges maintain important traditions that have become part of the fabric of America. . . . But those traditions alone cannot justify the NCAA’s decision to build a massive money-raising enterprise on the backs of student athletes who are not fairly compensated. 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.
That is a warning the NCAA would be wise to heed.