Supreme Court Holds That the ‘NCAA Is Not Above the Law' and Issues Warning to Colleges, Universities and Other Not-for-Profit Institutions

Alerts / June 30, 2021

On June 21, 2021, in NCAA v. Alston, the U.S. Supreme Court unanimously held that the National Collegiate Athletic Association’s (NCAA) rules limiting education-related compensation that colleges and universities can provide to student-athletes violate Section 1 of the Sherman Antitrust Act. Slip Op. 20-512 (June 21, 2021). In the opinion written by Justice Neil Gorsuch, the Court affirmed that the NCAA is not exempt from the antitrust laws, in the process sending a shot across the bow of colleges and universities (and other not-for-profit entities), stating, “[T]o the extent [the NCAA proposes] 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.”

Making this an unusual antitrust case, the parties did not challenge the district court’s definition of the relevant market and they did not dispute that the NCAA enjoys monopsony power in that market (nor was there any argument that the plaintiffs had to show more than harm in just the labor market – for example, harm to the consumer market for college sports). There was no question that the NCAA member schools competed for student-athletes, and there was no dispute that the NCAA’s restrictions decreased the compensation that student-athletes would otherwise receive but for those rules (and that such decreases in compensation drove down participation in the relevant labor market). Justice Gorsuch succinctly captured these unique areas of agreement, observing that “this suit involves admitted horizontal price fixing in a market where the defendants exercise monopoly control.”

Accordingly, the Court focused on the issue on which it granted certiorari, namely the NCAA’s argument that the district court applied the wrong standard of review when it conducted a full Rule of Reason analysis. The NCAA argued that the Supreme Court should have engaged in “abbreviated deferential review” instead of applying a full rule of reason analysis. Here, the Rule of Reason involved three steps: “(1) [the] [s]tudent-[a]thletes bear the initial burden of showing that the restraint produces significant anticompetitive effects within a relevant market; (2) if they carry that burden, the NCAA must come forward with evidence of the restraint’s procompetitive effects; and (3) [s]tudent-[a]thletes must then show that any legitimate objectives can be achieved in a substantially less restrictive manner.”

The Supreme Court agreed with the district court’s analysis that restrictions on education-related payments should be analyzed under a full Rule of Reason analysis, and it upheld the injunction prohibiting the NCAA from enforcing rules that restrict education-related benefits that member institutions may offer students who play Division I Football Bowl Subdivision football and Division I basketball. Furthermore, the Court confirmed that the Rule of Reason’s “three steps do not represent a rote checklist, nor may they be employed as an inflexible substitute for careful analysis,” emphasizing that the rule is about conducting a reasonable analysis given the circumstances of a particular case. Here, the Court was highly skeptical of the NCAA’s argument that its rules had a procompetitive benefit – namely, that its product promoted and was defined by amateurism.

This was the first time the Court had been asked to find that admitted anticompetitive conduct was legal on the basis of a so-called “quick look analysis,” which was akin to asking the Court to effectively find that the anticompetitive conduct at issue was per se legal. In rejecting this argument, the Court observed that certain agreements among members of a sports league might be upheld in the “twinkling of an eye” (even when that league has market power). For example, this would include agreements regarding how many players could be on a team or on the field, or the duration of play, which are fundamental to the functioning of the league. “But this insight does not always apply. That some restraints are necessary to create or maintain a league sport does not mean all aspects of elaborate interleague cooperation are.” Only rules that go to the core of producing the game warrant a quick look analysis, the Court explained.

The Court was complimentary of the district court’s handling of the matter, noting that its “judgment does not float on a sea of doubt but stands on firm ground – an exhaustive factual record, a thoughtful legal analysis consistent with established antitrust principles[] and a healthy dose of judicial humility.” Thus, it is unsurprising that the Court was unwilling to throw away that “thoughtful” analysis, including a bench trial in favor of a quick look analysis, which some courts have used to spare the courts and litigants the expense and burden of costly discovery and perhaps an antitrust trial (which had already occurred in this case). The Supreme Court acknowledged that thinking but was also crystal clear that federal judges are not necessarily well equipped to call balls and strikes, particularly in hindsight, involving complex business determinations. As the unanimous Court held, a “wide berth” should be given in such cases that are better suited for a more factual and expert opinion review. “Even under the best of circumstances, applying the antitrust laws can be difficult – and mistaken condemnations of legitimate business arrangements are especially costly, because they chill the very procompetitive conduct the antitrust laws are designed to protect.”

Education-related compensation has not been clearly defined, and the NCAA still has the ability to define the outer boundaries of that term. Accordingly, it remains unclear exactly what constitutes education-related compensation, creating uncertainty as to what the NCAA may allow under its rules. Furthermore, only the NCAA appealed the Ninth Circuit’s decision – the student athletes did not – leaving in place rules limiting compensation unrelated to education. (The athletes had originally sued more generally over the “current, interconnected set of NCAA rules that limit the compensation they may receive in exchange for their athletic services.”) Therefore, there likely will be more litigation on the horizon challenging the NCAA’s rules limiting payments to student-athletes unrelated to education.

This is made even more likely by Justice Brett Kavanaugh’s concurring opinion wherein he indicated that the NCAA’s compensation rules that are still intact may be vulnerable to additional challenges through the courts, particularly where such rules rely solely on the claimed procompetitive benefit of amateurism. Justice Kavanaugh stated, “[t]he rest of the NCAA’s compensation rules [unrelated to education] are not at issue here and therefore remain on the books,” but raise “serious questions under the antitrust laws.” In fact, Justice Kavanaugh urged the NCAA to proactively address its remaining compensation rules and cautioned that “[t]he NCAA is not above the law.” Whether through litigation, legislation or collective bargaining, the antitrust laws and their limits on the ability of the NCAA to regulate amateur student-athlete compensation will continue to be carefully scrutinized in Congress and/or the courts.

For more information regarding these developments, please contact BakerHostetler’s Antitrust and Competition and Sports and Entertainment Industry teams. We provide clients with a multidisciplinary approach to comprehensively assist them through antitrust issues related to professional and collegiate sports.

Authorship Credit: Carl Hittinger, Julian Perlman and Lauren Lyster

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