For Europeans, university sports typically constitute little more than a hobby: Activities with fellow students and faculty, enjoyed once or twice a week on the grounds of one's alma mater's sports facilities. In the United States, college sports are a multi-billion dollar industry at the second-highest or highest level a sport can offer. Around 20 million viewers watched the 2021 women's and men's basketball championship games of the National Collegiate Athletic Association (NCAA). Coaches are the highest-paid public employees in 42 out of 50 US states. Schools achieve significant profits from their sports programs through the sale of media rights or increased donations from alumni.
Against this background, it seems surprising that those who actually step onto the football field, into the basketball arena or atop the pitching mound – the student-athletes – receive little compensation.
As a rule, NCAA member universities may not provide to their athletes any individual compensation beyond scholarships – the cost of school tuition and related expenses. Even though they are national stars, these students receive nothing in comparison to the millions made by their schools, coaches, managers, officials, TV stations, and so on. The president of the NCAA earns nearly USD 4 million per year (NCAA v. Alston, 594 U.S. _ (2021)).
Undertakings conspiring to restrict their worker's salaries? Is that not a "restraint of trade or commerce" prohibited by Section 1 of the Sherman Act (15 U.S.C. §1) – the central rule of US antitrust (competition) law?
Yes it is, at least in part, held a US District Court in California (In re Nat'l Collegiate Athletic Ass'n Athletic Grant-in-Aid Cap Antitrust Litig., 375 F. Supp. 3d 1058 (N.D. Cal. 2019)). The District Court ruled that antitrust law prohibits the NCAA from restricting education-related benefits (including scholarships for graduate or vocational school, or post-college paid internships), but upheld the NCAA's restriction on benefits not related to education – in particular, cash salaries for playing. These restrictions are anticompetitive price-fixing agreements, but were judged as reasonable and therefore allowed, because they would blur the line between college and professional sports, which could reduce demand for college sports on the market.
The NCAA appealed this judgment, but the District Court's ruling was affirmed by the Ninth Circuit Court of Appeals (958 F.3d 1239 (9th Cir. 2020)) and now also by the United States Supreme Court (NCAA v. Alston, 594 U.S. _ (2021)) The Court's decision was clear: All nine judges ruled against the NCAA in a slam dunk decision delivered by the conservative Associate Justice Neil Gorsuch.
NCAA v Alston offers a good overview of the structure of antitrust law in the United States as it compares with European competition law. The Sherman Act appears to offer no exception to its strict basic rule: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." (15 U.S.C. §1).
By comparison, the European Union's Article 101 TFEU sets a similar prohibition in para 1, but explicitly sets out factors under which a restriction of competition can exceptionally be allowed (Art 101 para 3 TFEU).
This does not mean that US antitrust law is without exception. Courts (including the Supreme Court) have held that the Sherman Act should be applied under a "rule of reason": This rule "requires a court to conduct a fact-specific assessment of market power and market structure to assess a challenged restraint's actual effect on competition." The "goal is to distinguish between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer's best interest." (NCAA v. Alston, 594 U.S. _ (2021), p. 9 with further references)
As a result, US and EU competition law offer broadly similar exceptions to allow some restrictions of competition under the law.
At issue in front of the Supreme Court was the NCAA's contention that the District Court should not have applied the rule of reason – carefully weighing benefits and drawbacks of the NCAA's restrictions – but should have made only a cursory analysis. That brief analysis, the NCAA suggested, would have resulted in a ruling that would have allowed all of the restrictions at issue.
Not so, SCOTUS (Supreme Court of the United States) said: It points to the fact that "the NCAA accepts that its members collectively enjoy monopsony power in the market for student-athlete services, such that its restraints can (and in fact do) harm competition." This is not changed by the fact that the NCAA comprises a number of otherwise independent undertakings (the member universities).
Finally, the NCAA argued, essentially, that "amateur" (i.e., unpaid) status of athletes is a feature, not a bug: Consumers would abandon college sports if the players could receive compensation for their work. The Supreme Court however noted that the District Court even gave the NCAA some leeway in setting restrictions on competition: The NCAA need not implement the "least restrictive means of preserving consumer demand." Rather, it must only give up those restrictions which are "patently and inexplicably stricter than is necessary to achieve the procompetitive benefits the league had demonstrated".
In a scathing concurrence, Associate Justice Brett Kavanaugh addressed this argument in clear terms: "The NCAA’s business model would be flatly illegal in almost any other industry in America. All of the restaurants in a region cannot come together to cut cooks' wages on the theory that 'customers prefer' to eat food from low-paid cooks. Law firms cannot conspire to cabin lawyers' salaries in the name of providing legal services out of a 'love of the law.' Hospitals cannot agree to cap nurses' income in order to create a 'purer' form of helping the sick. News organizations cannot join forces to curtail pay to reporters to preserve a 'tradition' of public-minded journalism. Movie studios cannot collude to slash benefits to camera crews to kindle a 'spirit of amateurism' in Hollywood. Price-fixing labor is price-fixing labor. And price-fixing labor is ordinarily a textbook antitrust problem because it extinguishes the free market in which individuals can otherwise obtain fair compensation for their work." (NCAA v. Alston, 594 U.S. _ (2021), Kavanaugh concurring)
Kavanaugh's concurrence would probably be mainstream opinion under EU competition law. It, as well as portions of the majority opinion of the Court, also point to a possible eventual downfall of the NCAA's ban on compensating student athletes.
SCOTUS' opinion in NCAA v Alston offers us Europeans a helpful overview into the basic methods of US antitrust law. In particular, we can see that the two competition law systems are not as far apart as some argue.
Are multi-million dollar sponsorships of college athletes right around the corner? Not so fast. The opinion in NCAA v Alston is limited to in-kind educational benefits – think computers, tutoring and school supplies rather than luxury cars, watches and jewelry. Indeed, as the majority opinion notes, nothing stops the NCAA from enforcing a "no Lamborghini" rule. The NCAA now has to walk a thin line between adhering to the SOCTUS decision while, in its view, preserving the amateurism in college sports it holds so dear.
Nevertheless, the NCAA is on the back foot when it comes to student-athlete compensation. Legislation passed in an increasing number of US states permits student-athletes to profit from their name, image and likeness (NIL) despite longstanding NCAA rules to the contrary. With some of those laws set to enter into force as soon as 1 July 2021 the NCAA adopted a last-minute "interim policy" that permits student-athletes to benefit from their NIL without forfeiting their college eligibility. Time will tell whether this policy will hold. For student-athletes to fully participate in the profit they generate for their universities may however still be a long way off.
STADLER VÖLKEL offers comprehensive advice and representation in all antitrust and competition matters. Between our experts for Austrian, European Union, and United States law, we have experience in a broad range of competition matters in this field including cartel, joint-venture, and other multilateral cases. Based on a solid foundation in law, our work aims to act as a fulcrum for your strategy.
For further information, contact Florian Prischl, attorney at law and head of the STADLER VÖLKEL competition law practice group, or Bryan Hollmann, attorney at law (New York, USA).