NCAA v Alston: A Brave New World for College Sports

Posted in: Business Law

On Monday, June 21, the Supreme Court in National Collegiate Athletic Association v. Alston (No. 20-512) definitively rejected the proposition that the National Collegiate Athletic Association (NCAA) is immune from federal antitrust law. In an unusual unanimous ruling, Justice Neil Gorsuch’s opinion for the Court concludes that the NCAA’s attempt to limit compensation to student-athletes to preserve their amateur status is subject to the normal rule of reason analysis applied in antitrust cases. The ruling itself is narrow because it overturns only those NCAA rules that cap the amount that schools can pay student-athletes for education-related benefits. Yet its implications are broad and may call into question the NCAA’s ability to limit compensation to student-athletes in other areas. Given the recent spate of state laws allowing student-athletes to hire agents and obtain compensation for their name, image and likeness (NIL), the NCAA’s ability to preserve “traditional” college sports may be very limited.

Alston came to the Court on a full record, after years of discovery and a 10-day bench trial before Judge Claudia Wilken in San Francisco. Judge Wilken, applying the traditional antitrust rule of reason, upheld the NCAA’s rules “that limit athletic scholarships to the full cost of college attendance and that restrict compensation and benefits unrelated to education,” concluding 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.” (Significantly, the plaintiffs did not challenge this aspect of this aspect of the ruling below, thus limiting the Court’s review to the question of education-related benefits only.) Yet the NCAA’s limitation on education-related benefits—such as scholarships for graduate or vocational school, payments for tutoring or post-eligibility internships—bore no resemblance to anything found in professional sports, could not reasonably affect consumer demand, and therefore lacked justification under rule of reason analysis. The district judge’s decree allowed the NCAA to limit cash awards for academic achievement and to regulate how conferences and schools provide education-related benefits, and it permitted individual schools and conferences to impose tighter restrictions than the NCAA might impose. The Ninth Circuit affirmed her ruling, as did the Supreme Court.

After providing a breezy history of college sports, Justice Gorsuch acknowledged that even for organizations like the NCAA with buyers’ monopoly power, some rules imposed in sports—such as how long games should be, how many players per side—are obviously reasonable. But this “quick look” approach does not extend to restrictions on “wages to student-athletes,” which require a detailed analysis of the impact of those rules on the product or consumer market. While agreeing in general that courts should not require businesses to choose the least restrictive method of meeting legitimate business goals and that courts should be cautious about involving themselves too deeply in “intricate business relationships,” the Court sustained the district court’s analysis of the impact of the NCAA’s restrictions on education-related benefits because the analysis was based upon “an exhaustive factual record, a thoughtful legal analysis consistent with established antitrust principles, and a healthy dose of judicial humility.”

Justice Brett Kavanaugh concurred in a powerful opinion, maintaining 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.” Writing only for himself, he stressed the significance of the Court’s holding that the normal rule of reason analysis applied to NCAA rules limiting the compensation of student-athletes. Based on traditional antitrust analysis, Justice Kavanaugh concluded that “the NCAA’s business model would be flatly illegal in almost any other industry in America” because “[n]owhere 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.”

The impact of Alston is difficult to predict. The case will spawn additional litigation even though the Court sustained the NCAA’s limits on the amounts of college scholarships and thus did not open the door to “pay for play” or other payments in recruiting. There surely will be some debate about what constitutes an “education-related benefit” beyond tuition remission for graduate or vocational school; computers and musical instruments for music majors seem to fall on one side of the line, while automobiles to travel to or around campus will be hard to justify.

Perhaps Congress will read this opinion and decide it is time to intervene and clarify the situation, although it has not done so in a far more pressing area: state laws allowing college athletes to receive compensation for use of their name, image and likeness (NIL). The NCAA, which initially outlawed such agreements but more recently announced its receptiveness to the concept, has repeatedly deferred issuing any concrete proposals or interim standards, although it may soon be doing so. Congress has held hearings on the subject but no legislation appears imminent. The result is that some 20 states have enacted NIL statutes, six of which are scheduled to go into effect on July 1. While the state statutes vary, the failure of the NCAA to propose uniform standards allows different states to compete to pass the most athlete-friendly law, regulating state-by-state when student-athletes can enter into such agreements (before or during college), when they can retain agents and for what purposes, whether and when NIL agreements must be disclosed to a college or university, or whether a student-athlete can use his/her NIL to advertise tobacco, alcohol, firearms, or cannabis. Can a well-known high school student-athlete from one state claim that his status should be governed by the law of his home state, thereby avoiding a more restrictive law in the state where he attends college? Unless and until there are some uniform standards, chaotic state regulation (and interstate competition to attract the best student-athletes by promising the highest NIL return) is sure to follow. The effect of conflicting and competing state NIL regulation on the consumer market—the market at the core of the Court’s analysis in Alston—remains to be seen.

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