July 10, 2021
Nat’l Collegiate Athletic Ass’n v. Alston
Response by Professor Thomas C. Arthur
Geo. Wash. L. Rev. On the Docket (Oct. Term 2020)
Slip Opinion | SCOTUSblog
NCAA v. Alston: Unanswered Questions About the Future of College Sports—and the Antitrust Rule of Reason
The Supreme Court’s decision in National Collegiate Athletic Association (“NCAA”) v. Alston1 was widely anticipated by both sports fans and antitrust lawyers. Fans wanted to know whether the Court would uphold the Ninth Circuit decision2 invalidating some of the NCAA’s restrictions on compensating student athletes. If so, would the remaining limits soon fall? Antitrust lawyers were more concerned about the “Rule of Reason,” the standard for evaluating productive collaboration under Section 1 of the Sherman Act,3 specifically the role of less restrictive alternatives (“LRAs”) to otherwise permissible restraints. Must productive restraints be the least restrictive imaginable? Or should courts defer to good faith business judgements in the absence of a substantially less restrictive but equally effective alternative?4 The Court’s unanimous decision affirming the circuit court’s decision, however, gives only partial answers to these questions.
Plaintiffs filed a class action against the NCAA and eleven Division I conferences challenging the entire set of limits on player compensation.5 Applying step one of the Rule of Reason, the Alston district judge found that the rules limited competition for the services of college athletes, which was not seriously in doubt.6 That required the defendants at step two to show that the restrictions were nonetheless procompetitive because they distinguished college from professional sports, thus preserving consumer demand for their product. Here, the district judge erred. On the one hand, she found that the NCAA had failed to show that the restrictions “in and of themselves, have any direct connection to consumer demand.”7 On the other hand, the district judge “credit[ed] the importance to consumer demand of maintaining a distinction between college sports and professional sports,” but found that rules preventing students from receiving “unlimited payments unrelated to education, akin to salaries seen in professional sports leagues” served that purpose.8 The other restrictions, however, mostly on “non-cash education-related benefits,” such as post-eligibility graduate scholarships, tutoring, and computers, “could not be confused with a professional athlete’s salary” and would only “emphasize that the recipients are students.”9
The district judge then turned to step three: whether plaintiffs could identify one or more LRAs that would also prevent “demand-reducing unlimited compensation indistinguishable from that observed in professional sports.”10 The district judge decided that one LRA could meet this goal. Under this alternative, the NCAA would still be allowed to cap athletic scholarships and limit benefits unrelated to education. The LRA would bar, however, most NCAA limits on education-related payments and benefits.11 The resulting injunction provided a detailed laundry list of the benefits that could not be restricted.12
Significantly, the district court rejected plaintiffs’ challenge to NCAA rules limiting athletic scholarships to the full cost of attendance and restricting compensation and benefits unrelated to education. Although the court held that these amounted to price-fixing agreements, they were reasonable because “professional level cash payments . . . could blur the distinction between college sports and professional sports . . . .”13
Both sides appealed. The Ninth Circuit affirmed in all respects, stating that “the district court struck the right balance in crafting a remedy that both prevents anticompetitive harm to Student-Athletes while serving the pro-competitive purpose of preserving the popularity of college sports.”14
In the Supreme Court, the plaintiffs did not renew their challenge to the NCAA regulations sustained below, and Justice Gorsuch’s opinion for the Court expressly “did not pass on the rules that remain in place or the district court’s judgment upholding them,” but was “confined to those restrictions now enjoined.”15
The NCAA made two primary challenges to the lower courts’ rulings. First, it asserted that they should not have applied the usual Rule of Reason analysis to the NCAA’s restraints.16 Instead, according to the NCAA, these should have been subjected at most to an abbreviated, deferential review for three reasons, all of which the Court rejected.17 The Court disagreed with the argument that restrictions by cooperative joint ventures such as sports leagues were routinely upheld, noting that more scrutiny was required where, as here, the joint venture was dominant in its market.18 The Court also refused to accord the NCAA’s rules deference because they amounted to self-regulation by colleges to promote educational values.19 This was no surprise. The Court’s decisions establishing the modern Rule of Reason, especially National Society of Professional Engineers v. United States,20 do not permit consideration of social welfare justifications.21
Most significantly, the Court rejected the NCAA’s reliance on NCAA v. Board of Regents.22 For over 30 years, lower courts had read Board of Regents as requiring them to defer to the NCAA’s judgments on athlete compensation, even though those particular rules had not been before the Court in that case.23 It is easy to see why. In declining to apply the per se rule against horizontal price fixing to the NCAA’s television rules in his Board of Regents opinion, Justice Stevens relied on the NCAA’s need to distinguish college football, a “‘product’ with an academic tradition [that] differentiates college football from and makes it more popular than professional sports to which it might otherwise be comparable, such as, for example, minor league baseball.”24 To do so, Justice Stevens continued, “athletes must not be paid, must be required to attend class, and the like.” This could only be done by mutual agreement of the colleges.25 Section VII of the opinion, its conclusion, directly addressed the NCAA’s compensation restrictions:
The NCAA plays a critical role in the maintenance of a revered tradition of amateurism in college sports. There can be no question but that it needs ample latitude to play that role, or that the preservation of the student-athlete in higher education adds richness and diversity to intercollegiate athletics and is entirely consistent with the goals of the Sherman Act.26
This section provided a way for courts get around Professional Engineers in NCAA cases but not in others. This approach seems to have been motivated by the concerns expressed by the dissent by Justices White and Rehnquist in that case. They took exception to the idea that college sports were just another “brand” and college athletic programs “products” that the NCAA was promoting, with their rules seen, as in Alston, as justifiable only on economic grounds. To the contrary, the NCAA’s television rules should be evaluated as part of a network of regulations to ensure that college athletics retain their traditional educational role as extra-curricular activities.27 Clearly, they had a point. Student athletes are not just paid labor and colleges are not simply businesses.28 Any analysis that ignores this is incomplete. Nevertheless, the Court dismissed the Board of Regents statements as mere dicta unreflective of current “market realities,”29 especially the vastly increased revenues that the case had made possible in the first place.
The NCAA’s second objection was that the lower courts had misapplied the usual Rule of Reason at steps two and three by limiting the NCAA’s regulations to the minimum necessary in the district court’s view to prevent the blurring of the line between college and professional sports. This amounted to a requirement that the NCAA employ the least restrictive means.30
Justice Gorsuch agreed with the NCAA31 that the Rule of Reason “does not require businesses to use anything like the least restrictive means of achieving legitimate business purposes” and “courts should not second-guess ‘degrees of reasonable necessity’ so that ‘the lawfulness of conduct turn[s] upon judgments of degrees of efficiency.’”32 Indeed, that “would be a recipe for disaster,” as my fellow amicus authors and I argued, for skilled lawyers could always come up with arguably less restrictive alternatives. Applying antitrust laws is difficult at best, Justice Gorsuch continued, and mistaken condemnations of legitimate business arrangements will chill future ones.33 Then, however, he claimed that the district court had not in fact required the least restrictive means of distinguishing its product from professional sports. The NCAA had failed to persuade the district court at step two that its rules collectively sustain consumer demand; all the district judge found was that the rules the Court ultimately upheld—the most restrictive ones—“may” have procompetitive effects.34 By allowing these restraints, while eliminating or modifying the others, the lower courts were not requiring the NCAA to employ the least restrictive means of maintaining the distinction between college and professional sports. Instead, the courts were limiting the NCAA to a “substantially less restrictive” set of restraints.35
But is this really so? There seems to be a substantial difference between what the Court says here and what it does. However one characterizes her fact finding at step two, the district judge ultimately agreed with the NCAA’s basic point: substantial restraints on athlete compensation are necessary to distinguish college from professional sports and thus are procompetitive. The district judge’s detailed laundry list of permissible education-related benefits and the amount of permissible cash payments is exactly the second guessing of “degrees of efficiency” that the Court purports to condemn. It remains to be seen what the lower courts will make of this in future cases. Hopefully, they will do a better job than the Court itself does of following its own admonition against judicial second guessing of business judgments, requiring only those LRAs that really are substantially less restrictive but equally effective. For now, however, the law remains unclear.
Also unclear is the future of the NCAA’s primary restrictions on athlete pay. Technically, they were not at issue in the Supreme Court, but as Justice Kavanaugh’s concurring opinion advised future plaintiffs, they are vulnerable. He all but says they are unlawful: “Price-fixing labor is price-fixing labor . . . ordinarily a textbook antitrust problem.”36
The issues are not that easy. If this really were garden variety price-fixing, the NCAA’s rules would be per se illegal, and no Rule of Reason analysis would be required. Justice Kavanaugh himself agrees that the NCAA can require student athletes to be real students.37 He also notes the problems that will follow if the compensation rules are held invalid. How would this affect non-revenue raising sports?38 Could athletes in some sports but not others receive compensation?39 What about salary caps to preserve some measure of competition balance, a problem the professional leagues all deal with in some manner or other?40 How would all this “comply with Title IX”?41 Indeed, how would it? And just how would Division I schools mask the fact that they are, practically, minor league teams for the NFL and NBA.42
These are all good questions. They show why future courts may be hesitant to eliminate the NCAA’s basic rules, just like the lower courts in Alston. If anything, they illustrate the wisdom of Justice White and Rehnquist’s dissent in Board of Regents. Viewing college sports solely as a business rather than as an integral part of schools’ educational programs distorts the analysis in fundamental ways. Yes, some schools make a lot of money on some sports, but they do not distribute the profits to investors. Most of their athletic programs cost money, not make it. The vast sums from football and basketball that so upset Justice Kavanaugh43 and other critics subsidize the non-revenue sports, including those required by Title IX. By the way, the “compensation” for scholarship athletes is not nothing, as Kavanaugh suggests.44 It is the best financial aid around; a college education for no charge—not even for books or room and board—and thus, an education free of student debt. Most student athletes will not become professionals, but they will have college degrees—if they take advantage of the opportunity.
Put simply, colleges are not like professional sports franchises. The Dallas Cowboys field only a football team. Title IX and non-revenue sports are no part of what they do. Their players do not go to class, although they do have to study film. Most college athletes, however, actually are amateurs. Division II schools provide only partial scholarships, and Division III and Ivy League schools provide none at all, yet students still play. After all, all sports are still games that millions of us play for fun. The problem, of course, is that Division I teams play and practice a lot more than they used to, and too much play can become a job. If so, legislation may become necessary, as Justice Kavanaugh suggests.45 If so, it should put limits on college seasons and practice loads, not turn college teams into minor league sports franchises.
Professor Thomas C. Arthur is the L. Q. C. Lamar Professor of Law at Emory University School of Law. He holds degrees from Yale Law School and Duke University, where he was an Angier B. Duke Scholar and a member of Phi Beta Kappa. Prior to academia, he practiced law for eleven years with the Washington, DC office of Kirkland & Ellis. In 1982, he left his law firm partnership to join the Emory Law faculty.
Arthur teaches antitrust, civil procedure, and administrative law, and he has been active on the executive committee of the Antitrust Section of the Association of American Law Schools. His articles in the California and Tulane law reviews have been credited with the founding of a new, “statutory” school of antitrust analysis. His 1991 Emory Law Journal article (co-authored with Professor Richard D. Freer) provoked a nationally noted debate over an important new statute governing the jurisdiction of federal courts. A major antitrust article, “The Costly Quest for Perfect Competition: Kodak and Nonstructural Market Power,” was published in the New York University Law Review (vol. 69, April 1994).
1 No. 20-512, 594 U. S. ____ (U.S. June 21, 2021).
2 Alston v. NCAA, 958 F.3d 1239 (9th Cir. 2020), aff’g 375 F. Supp. 3d 1058 (N.D. Cal. 2019).
3 Sherman Antitrust Act of 1890 (Sherman Act), 15 U.S.C. § 1. The Rule of Reason is applied to those restraints of trade which are not per se unlawful “because of their pernicious effect on competition and lack of any redeeming virtue.” Northern Pac. Ry. v. U.S., 356 U.S. 1, 5 (1958). The Rule of Reason applies to restraints which do have redeeming virtues and may on balance be procompetitive. The Rule has three steps. First, the plaintiff must show that the challenged restraint produces substantial anticompetitive effects in a properly defined market. Second, if the plaintiff has made this showing, the burden shifts to the defendant to show that the restraint produces procompetitive effects. Third, if the defendant carries its burden, then the plaintiff must overcome the defendant’s showing by proving that a less restrictive alternative would produce these procompetitive effects. NCAA v. Alston, 594 U. S. ____ (2021), No. 20-512, slip op. at 24–25 (U.S. Jun. 21, 2021) [hereinafter Alston].
4 I joined an amicus brief urging the Court to reject the least restrictive alternative test. Brief of Amici Curiae Antitrust Law and Business School Professors in Support of Petitioners, NCAA v. Alston, 594 U. S. ____ (2021) (No. 20-512), available at https://www.supremecourt.gov/DocketPDF/20/20-512/168408/20210208135430804_20-512%2020-520%20tsacAntitrustLawAndBusinessSchoolProfessors.pdf. See also Thomas C. Arthur, A Workable Rule of Reason: A Less Ambitious Antitrust Role for the Federal Courts, 68 Antitrust L.J. 337, 380–81 (2001) [hereinafter Arthur, A Workable Rule of Reason] (opposing least restrictive alternative test); Thomas C. Arthur, Farewell to the Sea of Doubt: Jettisoning the Constitutional Sherman Act, 74 Calif. L. Rev. 263, 342–44 (1986) (opposing the least restrictive alternative test).
5 375 F. Supp. 3d at 1061–62.
6 Id. at 1068.
7 Id. at 1070 (emphasis added). The district court noted that that the NCAA’s modifications of the rules permitting increased payments to players had not reduced demand, which remained popular. Id. at 1074.
8 Id. at 1082–83.
9 Id. at 1083.
10 Id. at 1086.
11 Id. at 1087. The NCAA would be allowed to limit education-related awards and incentives, so long as the limits are not lower than its limits on athletic performance awards.
12 The NCAA could move to incorporate in the injunction its own definition of compensation or benefits related to education. More importantly, the injunction applied only to the NCAA itself and multi-conference agreements. Individual conferences (e.g., the Ivy League) and schools, lacking market power by themselves, would remain free to impose whatever restrictions they pleased. Alston, slip op. at 12–13
13 375 F. Supp. 3d at 1104.
14 958 F. 3d at 1263.
15 Alston, slip op. at 14.
16 See Brief for Petitioner at 18–21, NCAA v. Alston, No. 20-512, (U.S. filed Feb. 1, 2021).
17 Alston, slip op. at 1519.
18 Id. at 15–19.
19 Id. at 21–24.
20 Nat’l Soc’y of Professional Engineers v. U.S., 435 U.S. 679 (1978).
21 See Arthur, A Workable Rule of Reason at 352–54.
22 NCAA v. Board of Regents, 468 U.S. 85 (1984) (invalidating NCAA restrictions on members’ ability to license television rights).
23 See, e.g., Deppe v. NCAA, 893 F.3d 498, 501–02 (7th Cir. 2018); McCormack v. NCAA., 845 F.3d 1338, 1345 (5th Cir. 1988).
24 Bd. of Regents, 468 U.S. at 101–02.
25 Id. at 102.
26 Id. at 120.
27 Id. at 120–24, 131–36.
28 No serious business would have forgone for decades the huge revenues that the 1984 football rules denied NCAA members. To treat them, as the majority in Board of Regents did, as restraints on outcome to increase profits is absurd. No cartel would have set its output that low, leaving millions on the table.
29 Alston, slip op. at 21.
30 Id. at 26.
31 And with me and my fellow amici.
32 Alston, slip op. at 26 (citing Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 227 (CADC 1986)).
33 Id. at 26–27
34 Id. at 28.
35 Id. at 27–29.
36 Alston, slip op. at 3–4 (Kavanaugh, J., concurring).
37 Id. at 4.
38 Id.
39 Id. at 4–5.
40 Id. at 5. These caps and other restrictions employed by the professional leagues are also “price-fixing labor.” Justice Kavanaugh’s real problem seems to be that Division I colleges are “not paying student athletes a fair share of the revenues” from FBS football and basketball. Id. at 4. But textbook antitrust price fixing doctrine does not consider the reasonableness or fairness of the prices set. See, e.g., U.S. v. Trenton Potteries Co., 273 U.S. 392, 397-98 (1927). The only question is whether some form of price setting, e.g., the NCAA’s rules challenged in Alston, is reasonably necessary to serve procompetitive ends.
41 Id.
42 Here’s the textbook economic answer to his questions. In a truly competitive market, most if not all athletes in non-revenue and women’s sports would not be compensated at all. The others would get very little. A competitive market would not let the bench warmers at Duke make anything like the salary a Zion Williamson would have commanded. And competitive balance would not exist.
43 Id. at 4.
44 Id.
45 Id.
