Supreme Court Slams NCAA’s “Procompetitive Rationale” in Unanimous Ruling

Last week, the Supreme Court unanimously affirmed a lower court decision striking down NCAA rules limiting student-athlete compensation in a decision that is now being scrutinized for its impact on both antitrust law and college sports.

In NCAA v. Alston, plaintiffs challenged those restrictions as a horizontal agreement to limit earnings for their labor.  The Supreme Court agreed, holding that the antitrust laws prohibited the NCAA from limiting education-related benefits, like computers and tutoring.  Similar restrictions, including on scholarships and performance compensation, and on payment for use of the athletes’ names, images, and likenesses, were not before the Court.

The NCAA’s “Procompetitive Rationale”

Although price-fixing labor has been held to be a per se violation of the antitrust laws, the Supreme Court analyzed the NCAA’s restraints under the more deferential rule of reason, following the Court’s 1984 precedent, NCAA v. Board of Regents of the Univ. of Oklahoma.  In that case the Court found that the per se rule was not appropriate because amateur sports leagues require some horizontal coordination to decide on things like scoring and rules.  This distinction is important because the rule of reason, unlike the per se rule, allows a defendant to offer a “procompetitive rationale” for the restraint.

The NCAA offered a rationale: to preserve “amateurism” in college sports.  But the Court rejected that justification, finding that over the years the NCAA had essentially relinquished any veneer of amateurism and had become a professional in many respects.  “When it comes to college sports, there can be little doubt that the market realities have changed significantly since 1984.”  Alston, at 21.  Whereas Division I football and basketball raised approximately $922 million and $41 million respectively in 1985, by 2016 Division I schools raised more than $13.5 billion.  Id.  As a result, the Supreme Court doubted that the bans on education-related benefits “foster[] competition among amateur athletic teams and are therefore procompetitive.”  Id. at 20.

The Court’s skepticism at the NCAA’s “procompetitive rationale” is nothing new.  Monopolists and cartels often try to justify their restraints by claiming the challenged conduct generates various kinds of consumer benefits, or by saying the restraint is intrinsic to the “product design.”  The Court, importantly, expressly rejected the notion that a defendant can relabel a restraint of trade as product design and justify it on that basis.  Justice Kavanaugh’s concurrence went even further, characterizing this argument as “circular” and “unpersuasive.”

The bottom line is that if the claimed benefits do not enhance competition, they are irrelevant.  For example, in Alston the district court found “little evidence to support the NCAA’s contention that its compensation restrictions” increased consumer demand.  Alston, at 11.  As a result, the Court found NCAA’s arguments to be little  more than “seeking special dispensation from the Sherman Act on the ground that their restraints of trade serve uniquely important social objectives beyond enhancing competition.”  Id. at 22.

The Court also dismissed “stray comments” in Board of Regents about the specialness of amateur sports.  Those words are mere “dicta and have no bearing on whether the NCAA’s current compensation rules are lawful.”  Concurrence at 2.  Similarly, the Court quickly dispensed with the NCAA’s argument that its member schools are not “commercial enterprises,” by noting 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.”  Alston, at 22.

In other words, if the NCAA wants a special exception from antitrust law, it should go to Congress and ask for one.

A Win for Plaintiffs – Except . . .

The high-profile victory under the rule of reason is a clear signal to lower courts that the rule of reason does not mean automatic dismissal.  However, despite a clear victory for the plaintiffs, Alston has some rather defense-friendly language.  For example, the decision observed that courts should not make “mistaken condemnations of legitimate business arrangements” which might be “especially costly, because they chill the very procompetitive conduct the antitrust laws are designed to protect.”  Alston, at 27.  For this, the court cited Trinko, a controversial case protecting a monopolist’s ability to deal with whoever it wants.

Alston also clarified the third step of the rule of reason, rejecting the “least restrictive alternatives” test.  Under the rule of reason, the plaintiff has the initial burden of showing substantial anticompetitive effect.  If the plaintiff succeeds, the burden shifts to the defendant to offer a procompetitive rationale.  If the defendant makes such a showing, the burden shifts back to the plaintiff to show that defendant’s restraints are “patently and inexplicably stricter than is necessary to achieve the procompetitive benefits.”  Id. at 28-29.  Previously, some courts interpreted the last step to require the defendant to show that its restraints “constituted the least restrictive means of achieving the procompetitive purpose.”  Id. at 26.  But the Court overruled this approach as requiring courts to second-guess business decisions.  In doing so however, the Court relied upon Ohio v. American Express, which created a controversial “two-sided simultaneous transaction platform” framework.  Many commentators expect courts to extend American Express to the tech monopolization cases, and so its appearance in Alston to explain the third step of the rule of reason sounds an ominous note.

The Court also expanded the “quick look” for defendants.  Historically, the “quick look” is often used by plaintiffs to justify a more abbreviated analysis.  But Alston seemingly gives the tool to defendants as well, stating that courts could apply the quick look to those restraints “so obviously incapable of harming competition that they require little scrutiny,” Alston, at 16-17.

Given the big-ticket tech monopolization cases making their way through litigation, citations to Trinko and American Express, and a defendant-friendly approach to the quick look, have not gone unnoticed.

Justice Kavanaugh Sends a Warning Signal to the NCAA

Justice Kavanaugh raised eyebrows by seemingly inviting further litigation against the NCAA.  According to his concurrence, if the NCAA’s justification for barring education-related expenses are unavailing, “it is not clear how the NCAA can legally defend its remaining compensation rules.”  Concurrence at 4.  The vast majority of student-athletes, even at elite well-funded schools, receive no compensation whatsoever, largely due to the NCAA’s rules.  Given Alston, it’s likely that future courts will cast a more skeptical eye at other horizontal agreements to limit athlete compensation, including with respect to performance pay, scholarships, and money for use of an athlete’s name, image, and likeness.

Justice Kavanaugh was particularly scathing in criticizing the NCAA for couching its arguments for not paying student athletes in “innocuous labels,” which he said “cannot disguise the reality: The NCAA’s business model would be flatly illegal in almost any other industry in America.”  Concurrence at 3.

Justice Kavanaugh also hinted at a possible solution—collective bargaining.  If the NCAA finds that antitrust litigation is too difficult to resolve compensation questions, it could allow the student-athletes to unionize, “akin to how professional football and basketball players have negotiated for a share of league revenues.”  Id. at 5.

Finally, Justice Kavanaugh recognized that Alston will likely have repercussions beyond antitrust law.  For example, Alston may impact Title IX, the landmark civil rights law that bans sex discrimination in education.  Under Title IX, schools have a legal obligation to provide equitable opportunities to men and women to participate in sports.  This includes providing female and male student-athletes with scholarship dollars proportional to their participation, and requiring equal benefits, like equipment, housing, dining, and recruitment.  If Alston requires schools to compete on compensation for student-athletes, it’s almost certain that the most resource-rich programs, such as men’s football and basketball programs at Division I schools will pay top dollar for prospects, creating possible inequalities with less resource-rich programs, including many women’s sports programs.  Of course, Alston only prevents agreements among schools to limit compensation.  Individual schools could comply with both laws in various ways, and some have suggested spinning off resource-rich sports into independent affiliates.

The NCAA clearly got the message.  This week they voted to rescind their restrictions on NCAA players receiving compensation for the use the use of their likenesses.  This is a significant sea change in the NCAA policies with respect to player compensation, and a change that could prove to be a precursor to broader changes in the NCAA compensation restraints.  The NCAA clearly sees the writing on the wall.

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