In a recent unanimous decision, the Supreme Court of the United States in NCAA v. Alston ruled that the National Collegiate Athletic Association’s (NCAA) limits on education-related benefits are invalid under federal antitrust law. This decision will affect compensation rules for student-athletes and is perhaps a sign of potential changes ahead in the NCAA’s student-athlete compensation model.
In Alston, NCAA Division 1 football and basketball student-athletes filed suit against the NCAA on the grounds that the NCAA’s student-athlete compensation restrictions violated the Sherman Antitrust Act. The lower courts ruled that the NCAA could not limit the education-related compensation or benefits that schools and conferences could provide to student-athletes playing Division 1 football and basketball. The NCAA appealed the ruling on the education-related benefits to the Supreme Court. The broader issue of non-education-related compensation that was argued below was not before the Supreme Court.
The Court affirmed the 9th Circuit’s ruling barring the NCAA from limiting education-related benefits.
The ruling was based on the Sherman Antitrust Act that was created in 1890 to prevent businesses from colluding or merging so that they could have the power to dictate the price in a particular market. Section 1 of the Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States[.]” The Court determined that the NCAA’s restrictions on education-related benefits were an improper restraint on trade that limited the benefits that could be paid to student-athletes and prevented the labor market from functioning, whereby student-athletes would be able to be compensated according to their value.
The Court rejected the NCAA’s argument that it should apply the “Quick Look” standard applicable in antitrust cases when the answer of whether a restraint was improperly anti-competitive is obvious. Instead, the Court followed the “Rule of Reason” standard that is the typical rule in anti-trust cases, wherein a court weighs all circumstances in a case, including market power and market structure, and decides whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.
The Supreme Court held that the lower courts properly analyzed the issue by finding that the NCAA’s compensation limits on education-related benefits, including academic tutoring restrictions or scholarships for graduate programs, do produce significant anticompetitive effects in violation of the Sherman Act because the rules hinder the ability of schools to compete aggressively for athletes and pay them market-based compensation appropriate for student-athletes. The Court did note that the NCAA could monitor what constitutes an appropriate educational expense, such as what the Court referred to as a “no Lamborghini” rule, as an extreme example of what could be restricted as compensation that purports to be educationally-related.
Notably, in a strongly-worded concurrence, Justice Kavanaugh criticized the NCAA’s compensation scheme more broadly and commented that “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.” It remains to be seen whether the rest of the Court shares Justice Kavanaugh’s views on the broader compensation question.
Although the Court’s decision still allows the NCAA to monitor what constitutes an education-related benefit, the Court’s decision will create changes to the NCAA’s model. And it appears to be part of a broader shift in the NCAA’s compensation rules. Beyond this ruling, the NCAA has recently relaxed its rules to allow student-athletes to profit from their name, image, and likeness.
Stay tuned for a future article regarding changes to name, image, and likeness (NIL) rules.
