Supreme Court to Decide NCAA Antitrust Case on College-Athlete Compensation

Supreme Court to Decide NCAA Antitrust Case on College-Athlete Compensation

By Elizabeth McCurrach and Julian Perlman, of BakerHostetler

On Dec. 16, 2020, the United States Supreme Court granted certiorari and agreed to review two Ninth Circuit decisions affirming that the National Collegiate Athletic Association’s (NCAA) and several collegiate athletic conferences’ rules regarding compensation paid to college athletes violates Section 1 of the Sherman Act. NCAA v. Shawne Alston, et al., No. 20-512 (S.Ct. Dec. 16, 2020). With the NCAA set to finalize its rules regarding name, image and likeness rights for student-athletes in January 2021, the upcoming Supreme Court review reinforces the uncertainty for industry stakeholders surrounding potential compensation for student-athletes. The NCAA and collegiate athletic conferences have argued that amateurism remains the defining characteristic of college athletics, but the struggle remains for colleges and universities to maintain a commitment to amateurism while staying on the right side of the antitrust laws, which prohibit coordinated efforts to fix costs.

The cases arrived at the Supreme Court after the Ninth Circuit Court of Appeals affirmed Judge Claudia Wilken’s district court judgment following a bench trial, which invalidated limits on education-related compensation for college students. When analyzing agreements involving league sports within the antitrust context, a court must determine whether the restriction is unreasonable under the “Rule of Reason.”[1] Within this context, the Rule of Reason requires a three-step analysis: “(1) Student-Athletes 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) Student-Athletes must then show that any legitimate objectives can be achieved in a substantially less restrictive manner.”[2] Judge Wilken found that restrictions on education-related payments failed under a Rule of Reason analysis and granted an injunction prohibiting the NCAA from enforcing rules that restrict education-related benefits that member institutions may offer students who play Football Bowl Subdivision football and Division 1 basketball.

On appeal, the Ninth Circuit reiterated that the NCAA is not exempt from the antitrust laws and must not engage in anticompetitive behavior.[3] In reviewing the district court’s analysis, the Ninth Circuit held that the district court properly applied the three-step Rule of Reason analysis. First, the plaintiffs carried their burden in showing that the NCAA’s compensation rules have significant anticompetitive effects on student-athletes because they are forced to accept whatever compensation is offered to them due to the lack of a viable alternative to compete at a high level.[4]

Second, the Ninth Circuit found that the district court properly held education-related compensation rules did not have a procompetitive justification but rules prohibiting unlimited non-education-related cash payments had a procompetitive justification.[5] The Ninth Circuit agreed with the NCAA’s arguments that rules against unlimited cash payments, akin to professional salaries, had a procompetitive effect of preserving amateurism, but disagreed with the NCAA that education-related benefits had a procompetitive effect.[6] In a win for the NCAA, the Ninth Circuit allowed the NCAA to continue prohibiting non-education-related cash payments. Notably, the district court expressly retained, and the Ninth Circuit affirmed, jurisdiction over future rule changes, giving it the power to decide what constitutes an education-related expense. Finally, the Ninth Circuit upheld the district court’s determination that less-restrictive alternatives existed to capping education-related benefits that would still further amateurism just as well as the NCAA rules do.[7]

The Supreme Court’s grant of cert means that stakeholders should have guidance from the highest court on these issues, which may restore some certainty to this previously settled area of the law. The Court may reverse and show continued deference to the NCAA, as is shown to other joint ventures in the sports world whose rule-making functions are arguably necessary and central to the sports product they offer – most notably enshrined in baseball’s express antitrust exemption (albeit not extended to other sporting activities). However, given the multibillion-dollar industry that encompasses college sports, the Court may be skeptical of the NCAA’s amateurism stance, calling into question whether players should generally continue not to share in the substantial revenues generated by university sports teams and programs. Should the Supreme Court affirm the Ninth Circuit’s reasoning, a host of new issues will arise, perhaps most clearly whether certain compensation is sufficiently related to education to be permissible. Even if it is arguably related to education, murkiness will persist as to whether the NCAA’s example of a $500,000 per semester “internship” with a sponsor deserves the same deference as a grant to a student-athlete for the purpose of purchasing a laptop. An important line has and will continue to be drawn and potentially refined by the Supreme Court between financial benefits related to education and other forms of compensation to student-athletes.

[1] In re NCAA Grant-in-Aid Cap Antitrust Litig., 958 F.3d 1239, 1256 (9th Cir. 2020).
[2] Id.
[3] Id. at 1256.
[4] Id. at 1256-57.
[5] Id. at 1257-59.
[6] Id. at 1260.
[7] Id. at 1260.

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