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Supreme Court Lifts the NCAA Restraint on Athlete Benefits

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According to a unanimous U.S. Supreme Court decision, the National Collegiate Athletic Association (NCAA) violated antitrust provisions of the Sherman Act in its limitation of certain student athlete benefits. On June 21, 2021, the Court published its opinion affirming the lower court rulings in NCAA v. Alston, holding that the NCAA cannot limit “education-related” benefits that schools can provide to amateur student athletes.

Alston was a class action lawsuit filed on behalf of student athletes who play NCAA Division I basketball and Football Bowl Subdivision (FBS) football, seeking relief from the NCAA’s rules prohibiting athlete compensation. As noted by the Court, Division I and FBS players form an elite group of college athletes. They are the money makers for college sports.

The Billion-Dollar Industry of College Sports

At the heart of this case is the fact that college sports generate a lot of money for many educational institutions, but very little for the student athletes. With more than a thousand colleges comprising its membership, the NCAA has long maintained a chokehold on amateur student athletes’ income, with its “power to restrain student-athlete compensation in any way and at any time they wish, without any meaningful risk of diminishing their market dominance.”  

The NCAA claimed its rules are essential to maintain players’ amateur status and to ensure the integrity of competition. The Court found this argument unpersuasive in the context of the lucrative revenue-generation machine that showcases Division I sports. FBS football alone accounts for a large share of a billion-dollar industry.

The NCAA’s all-encompassing restraint on a captive market runs afoul of antitrust law. The principle of antitrust legislation is to prevent a business – or a collaborating group of businesses – from capturing a market, price fixing, eliminating competitors, or engaging in other unfair practices that artificially control economic circumstances.

The Court explained that, in antitrust terms, the NCAA and its members are equivalent to a buyers’ cartel that obtains the captive services of the athlete “sellers” of services for the cartel’s business. In other words, the NCAA is the only game in town.

The NCAA’s penalties for rule infraction can be dire, and they vary on a case-by-case basis. For example:

Specifically at issue in Alston was the NCAA rule prohibiting a student athlete from receiving a benefit above the “grant-in-aid” allowance, which is the student’s basic scholarship package of tuition and fees, room, board, and books. Including a computer in the student’s scholarship package, for instance, would violate the NCAA’s rule, even though a computer is essential for college studies.

The District Court’s order, as affirmed by the Supreme Court, includes a permanent injunction that prohibits the NCAA from limiting education-related compensation or benefits to Division I basketball or FBS athletes on top of grant-in-aid. The Court defined “education-related” as “computers, science equipment, musical instruments and other tangible items not included in the cost of attendance calculation but nonetheless related to the pursuit of academic studies; post-eligibility scholarships to complete undergraduate or graduate degrees at any school; scholarships to attend vocational school; tutoring; expenses related to studying abroad that are not included in the cost of attendance calculation; and paid post-eligibility internships.” NCAA must now allow these benefits.

Alston Continues the Dismemberment of the NCAA Rules

Alston was not the NCAA’s first rodeo in the antitrust arena. In O’Bannon v. NCAA, student athletes successfully claimed that the NCAA’s restrictions against receiving promotional compensation for use of their names, images, and likenesses (NIL) violated the antitrust provisions of the Sherman Act.

That decision laid the groundwork for Alston. The U.S. Court of Appeals for the Ninth Circuit held in O’Bannon that the college recruitment of student athletes with scholarships and other permitted benefits defined a “market” within the meaning of antitrust law. Without the NIL price-fixing rule cutting the athletes out of the equation, schools could use NIL compensation as a competitive element in recruitment.

As a result of O’Bannon, the NCAA has amended its rules to allow NIL compensation, but it still maintains a measure of control. It requires full disclosure of NIL use to NCAA to ensure no actual sport performance is involved in the transaction.

In addition, an NIL bill allowing compensation for student athletes is pending in Congress, with legislation passed or pending in various states. With the Supreme Court’s Alston ruling now revealed on the education-related benefit rule, lawmakers may contemplate broader legislation to protect the rights of student athletes.

The NCAA Is Not above the Law

Yet another and louder bell tolls for the NCAA in Justice Kavanaugh’s concurring opinion in Alston. Expressing his disappointment that the case does not go far enough in breaking down the NCAA’s monopolistic hold on student athletes, he wrote: “The NCAA’s business model would be flatly illegal in almost any other industry in America.”

Though Justice Kavanaugh acknowledged the altruistic side of NCAA’s role in building the national community and spirit of collegiate sports, he stated that this accomplishment “cannot justify the NCAA’s decision to build a massive money-raising enterprise on the backs of student athletes who are not fairly compensated.

“Nowhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate. And under ordinary principles of antitrust law, it is not evident why college sports should be any different. The NCAA is not above the law.”

However, Alston addressed only education-related benefits. Justice Kavanaugh’s blistering concurrence with the Supreme Court’s unanimous decision on the issue strongly suggests the Court will be open to another opportunity to review NCAA student athlete compensation practices. To avoid such judicial oversight, the NCAA would be well served to find a middle ground acceptable to student athletes, individual institutions, and a disenchanted public, especially in the struggle to recover from the ravages of a pandemic.

The study and discussion of cases like Alston in our Business and Legal Studies programs provide students valuable insight into the trends of the social, political, and legal environment that shape the fabric of the business world.  For more information, visit our program pages.

Dr. Linda C. Ashar is a full-time Associate Professor in the Dr. Wallace E. Boston School of Business, teaching undergraduate and graduate courses in business, law, and ethics. She obtained her Juris Doctor from the University of Akron School of Law. Her law practice spans more than 30 years and includes business, employment law, nonprofit law, and litigation. She has received the 2021 Graduate Excellence in Teaching Award for the Dr. Wallace E. Boston School of Business.

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