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NCAA’s One-Year Scholarship Rule Faces Antitrust Exam

Posted  May 20, 2010

The Antitrust Division of the U.S. Department of Justice is asking the National Collegiate Athletic Association to explain its scholarship policy in an exam that could lead to a failing grade for the NCAA’s ban on multi-year athletic scholarships.

The NCAA’s rule requires schools to review students’ eligibility for athletic scholarships every year, up to a maximum of five years of eligibility – automatic multi-year scholarships are not allowed.  The NCAA’s ban on multi-year athletic scholarships arguably restrains competition among NCAA colleges and universities for the best players.  The concern is that given the with millions in ticket and television revenues at stake – the ban on multi-year scholarships could be a significant restraint of trade in violation of Section 1 of the Sherman Act.

The NCAA has responded that scholarships are a “merit” award and annual review helps to guarantee that scholarships in each year go to the students who most deserve them.  The five-year maximum, they said, corresponds to a student’s maximum eligibility to participate in college sports under NCAA’s ambit.  The Justice Department has not commented publicly on the investigation.

NCAA is no stranger to investigations and suits under Section 1.  It has contended with many antitrust challenges to its detailed rules about scholarships, coaching salaries, and other areas from the mid-1980s to today.  In 2008, NCAA settled an antitrust class action brought by a class of about 13,000 college football and basketball players.  The players argued that the organization’s cap on scholarship amounts – which forced many players on full scholarships to pay about $2,500 a year in out of pocket costs – amounted to a maximum price-fixing agreement among NCAA member schools.  The organization agreed to pay students back for the expenses they incurred and raise the maximum scholarship going forward.

Section 1 suits against NCAA highlight the conflict between the group’s mission to maintain the amateur status of student athletes and the enormous commercial pressure placed on colleges and universities to field the best teams possible.  As in other Section 1 suits where “rule of reason” analysis is used, NCAA’s rules tend to be upheld when they relate most closely to legitimate goals apart from restricting competition – in the NCAA’s case, preserving amateurism and differentiating college from professional sports as an entertainment product.  By this rationale, scholarship rules for students are often upheld, while caps on coaches’ salaries have been struck down as unlawful restraints on trade.

Tagged in: Antitrust Enforcement, Price Fixing,