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Unanimous Supreme Court Affirms Injunction Barring NCAA Rules that Limit Education-Related Compensation to Student AthletesJune 30, 2021
On June 21, 2021, the Supreme Court unanimously ruled that the NCAA cannot cap the education-related benefits that schools may offer student athletes. National Collegiate Athletic Association v. Alston, — U.S. — (2021). The Supreme Court’s opinion is significant for its application of antitrust principles to labor markets, which has been a recent priority at both the Antitrust Division of the Department of Justice and the Federal Trade Commission, and also for its discussion of the rule of reason, which is likely to have broader significance to the antitrust landscape.
In Alston, current and former student athletes challenged the NCAA’s restrictions on compensation as violations of Section 1 of the Sherman Act, which prohibits “contract[s], combination[s], or conspiracy[ies] in restraint of trade or commerce.” 15 U.S.C. § 1. Following a bench trial, the district court held that the NCAA’s rules restricting education-related benefits violated Section 1, but upheld other NCAA rules limiting scholarships and other compensation related to athletic performance. Both sides appealed, and the U.S. Court of Appeals for the Ninth Circuit affirmed in full. Only the NCAA pursued a subsequent appeal to the Supreme Court. The Court thus considered only the rules limiting education-related benefits; because the student athletes did not appeal, the Court did not consider the NCAA’s other limits on compensation unrelated to education.
The Court’s opinion, written by Justice Gorsuch, included an important discussion of the rule of reason, which is used to evaluate most restraints of trade. The Court confirmed that the goal of the rule of reason analysis is to evaluate the challenged practice’s effect on competition and consumers, distinguishing between practices that have anticompetitive effects that harm consumers and practices that enhance competition and are in the consumers’ best interest. Slip Op. at 9. The Court also affirmed that the district court had properly applied the full rule of reason analysis rather than a more abbreviated “quick look” in assessing the legality of the compensation rules. Id. at 15-18. Noting the limited set of restraints to which a quick look may apply, the Court explained that the quick look is reserved “only for restraints at opposite ends of the competitive spectrum,” such as “restraints that may be so obviously incapable of harming competition that they require little scrutiny,” or at the other end, “agreements among competitors [that] obviously threaten to reduce output and raise prices.” Id. at 16-17.
In this case, according to the Court, a full rule of reason analysis was required for several reasons. First, the NCAA is a monopsonist in the labor market for student athletes, so its rules could harm competition in that market. Id. at 17-18. Second, although collaboration among the NCAA’s members is necessary to facilitate intercollegiate athletics, that does not mean that all of its rules must be subject to a quick look. While a quick look may be appropriate for some of the NCAA’s rules that are “necessary to create a game,” that analysis may not be appropriate for other aspects of the NCAA members’ cooperation, such as restrictions on education-related compensation. Id. at 18. Accordingly, the dispute over “whether and to what extent those restrictions in the NCAA’s labor market yield benefits in its consumer market can be attained using substantially less restrictive means…presents complex questions requiring more than a blink to answer.” Id. at 19.
Applying the rule of reason framework, the Court focused on the third prong, whether the student athletes could show that there are substantially less restrictive alternative rules that would achieve the same procompetitive benefits. (In the first prong, the student athletes had shown that the compensation rules had a substantial anticompetitive effect, and in the second prong, the NCAA had shown that the rules may have procompetitive benefits.) Importantly, the Court confirmed that the NCAA did not have to show that the challenged rules were the least restrictive means of achieving its procompetitive purpose. This distinction is important, according to the Court, because “antitrust courts must give wide berth to business judgments before finding liability.” Id. at 30. Emphasizing that “caution is key” when evaluating an antitrust remedy, the Court urged judges to “remain aware that markets are often more effective than the heavy hand of judicial power when it comes to enhancing consumer welfare.” Id. at 34 35.
The Court’s opinion also addressed the NCAA’s arguments about amateurism, explaining that the goal of amateurism does not exempt the NCAA’s rules from antitrust scrutiny. The Court rejected the NCAA’s argument that it should not be subject to the rule of reason analysis because its rules maintain amateurism in college sports in furtherance of the goal of higher education, explaining there is no “special dispensation” from the antitrust laws for restraints that “serve uniquely important social objectives beyond enhancing competition.” Id. at 22. The Court similarly rejected the NCAA’s argument that the district court improperly redefined its “product” by rejecting the NCAA’s views about what amateurism requires, stating while “[f]irms deserve substantial latitude to fashion agreements that serve legitimate business interests…[and] that may include efforts aimed at introducing a new product…none of that means a party can relabel a restraint as a product feature and declare it ‘immune from § 1 scrutiny.’” Id. at 29 (quoting American Needle, Inc. v. Nat’l Football League, 560 U.S. 183, 199 n.7 (2010)).
In a strongly worded concurrence, Justice Kavanaugh added that the NCAA’s other limits on compensation, which were not before the Court, “also raise serious questions under the antitrust laws.” Id. (Kavanagh, J., concurring) at 2. Justice Kavanaugh critiqued the NCAA’s proffered procompetitive justification that its rules preserve amateurism in college sports as “circular and unpersuasive,” writing that “[t]he NCAA’s business model would be flatly illegal in almost any other industry in America.” “Price-fixing labor is price-fixing labor,” and “[b]usinesses like the NCAA cannot avoid the consequences of price-fixing labor by incorporating price-fixed labor into the definition of the product.” Id. at 4.
The Court’s decision, and particularly Justice Kavanaugh’s concurrence, may invite further challenges to the NCAA’s remaining compensation rules. Indeed, widespread rethinking of the NCAA’s rules governing the compensation of student athletes is already underway. Several states have passed laws allowing student athletes to sign endorsement deals to profit from their name, image, and likeness. In response to these laws, the NCAA recently indicated that it would adopt an interim policy allowing athletes in all 50 states to sign such agreements.
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