Supreme Court to Consider NCAA Authority to Limit Student Athlete Scholarships
Case will determine whether antitrust law constrains NCAA rules

by Hank Lacey

The U.S. Supreme Court will soon take up a dispute that raises the question of whether NCAA rules can limit financial assistance  provided to college athletes. The eventual decision could result in increased competitive pressures on universities to give monetary and other assistance to athletes.

At issue are 2014 changes to NCAA bylaws that allow schools in the “Power Five” athletic conferences to mutually limit the amount of athletic scholarship assistance granted to students. The Power Five conferences — so named because they generate the most revenue — include 65 colleges and universities assigned to the Atlantic Coast Conference, Big Ten, Big-12, Pac-12, and Southeastern Conference plus the University of Notre Dame.

The bylaws provide that scholarships can cover “tuition and fees, room and board, books and other expenses related to attendance at the institution up to the cost of attendance.” They also say athletes may lose their participation eligibility if they use their “athletics skill … for pay in any form in [their] sport.” The ban on “pay” extends to education benefits not paid in cash.

Division I and II institutions provide about $2.9 billion in scholarship money to their roughly 150,000 athletes each year, with an average per-student amount of $18,000 per year. The average non-resident tuition and fees at public universities was $22,577 last year, according to U.S. News and World Report, while the mean costs for private colleges found in its hierarchy was $36,801. The difference between scholarship proceeds and athletes’ cost of living can sometimes lead to difficult choices. Reports of athletes lacking sufficient food, for example, have popped up in recent years.

The disparity, says New Jersey-based sports attorney Alan Milstein, also extends to learning tools and needed materials. “The kinds of things we’re talking about are computers, science equipment, musical instruments — the kinds of things the other kids have,” he said. “The unfair situation encourages the kids to try and get around the rules so they can live their lives the way most of the students are living.”

Meanwhile, the total revenue from sports programs to all member schools in 2019 was $10.6 billion. The NCAA’s Division I men’s basketball and FBS football programs are especially lucrative. USA Today reported in July 2020 that the Power Five conferences generated a record $2.9 billion in revenue during fiscal year 2018-2019. The conferences, and consequently their member schools, receive billions more in revenue from television broadcasting contracts relating to men’s basketball and football and shared proceeds from the NCAA men’s basketball tournament. In addition, NCAA member institutions now receive about $8.3 billion in subsidies from public funds or student fees every year.

The bonanza allows NCAA and conference executives and men’s basketball and football coaches to receive huge salaries and bonuses. The USA Today data shows that, in 2018-19, Big Ten commissioner Jim Delaney was paid $10.3 million, Pac-12 boss Larry Scott earned $5.4 million, Big 12 leader Bob Bowlsby got $4 million, the ACC’s chief executive John Swofford drew $3.8 million, and SEC commissioner Greg Sankey collected $2.6 million. Meanwhile, according to an October 2020 report in USA Today, the average Power Five conference head football coach earns $4.4 million per year. All of the ten highest paid NCAA men’s basketball coaches lead teams in Power Five conferences.

This distribution of the economic rewards attached to Division I football and men’s basketball has driven litigation aimed at increasing opportunities for athletes to earn money from their labor in college sports programs. In 2015, the U.S. 9th Circuit Court of Appeals held that the NCAA rules, which prohibited FBS football and Division I basketball athletes from being paid for the use of their name, image, or likeness, violated the country’s oldest antitrust law, the Sherman Act. The court declared that the procompetitive purpose of retaining amateurism in college sports could be achieved by another means that did not restrain trade in personal publicity rights to the same extent. Despite the novel nature of the ruling, the 9th Circuit made clear that judges cannot use antitrust law to “micromanage organizational rules” or “strike down largely beneficial market restraints.”

In May of last year, the same court extended that ruling and upheld a lower court decision that the NCAA’s ban on athletes’ receipt of non-cash educational benefits including 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” also violates the Sherman Act. In addition, the 9th Circuit agreed with U.S. District Judge Claudia Wilken of Oakland, California, that the NCAA prohibition against “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” transgresses antitrust law.

John Francis, an instructor of antitrust law at the University of Colorado, said the application by the 9th Circuit of the Sherman Act to the NCAA’s treatment of athletes makes sense because the law aims to ban all anti-competitive actions that harm consumers. “In this case the consumers are the athletes,” he explained. Matt Mitten, a professor of law at Marquette University, does not dispute that the court correctly focused on the impact of NCAA rules on athletes. “I think it’s fair to say that student eligibility rules are commercial in nature,” he said. “They do limit competition among NCAA [schools] for student services. I think this is a commercial restraint.”

But Mitten said he thinks that’s not the important issue; instead, he believes, the real issue is the need for the cartel to protect its distinct role in the market for sports entertainment without undue scrutiny from courts. The NCAA, he said, is “concerned about micromanaging. It’s a different brand than the NFL and the NBA.”

“The concern is that this is essentially judicial micromanaging of the NCAA’s ability to define its brand of sports competition and to distinguish it from professional sports, not only at the major league level but at the minor league level,” Mitten continued. “There’s no question that, particularly football and men’s basketball at the Division I level, generate billions of dollars in revenues.” The NCAA’s argument comes down to the differences between college and professional sports. “NFL and NBA players are paid professionals, they’re employees of their respective teams, they have the right to unionize and collectively bargain their wages and other terms and conditions of employment,” he said. “In my mind that’s a really key distinction.”

The case may have drawn the attention of the Supreme Court because other federal appeals courts have approached antitrust claims involving NCAA eligibility rules differently. “You’ve got the 7th Circuit, the 3rd Circuit, and the 6th Circuit,” Mitten said. “They said those are non-commercial in nature. They’re not subject to [an] antitrust challenge. I think the 5th Circuit said, ‘well, even if we consider student athlete eligibility rules to be commercial, as a matter of law the procompetitive benefits outweigh any anticompetitive effects. So, really, the 9th Circuit is the first one that has said, ‘these are commercial restraints because they reduce economic competition among universities for student athletes’ playing services that otherwise would exist and they have to be looked at on a case-by-case basis under the rule of reason.’

Mitten was referring to the method of analysis that courts use to decide whether a commercial behavior violates the Sherman Act. “It’s just a balancing test,” Francis said. “It’s actually quite simple. You look at the anticompetitive effects of the rule versus … the procompetitive justification. As long as those are reasonable restraints that don’t unduly burden competition,” they are allowable.

Mitten said that, because of the differences between college sports and professional sports, the NCAA’s perspective is that it’s not appropriate to subject its rules to the rule of reason scrutiny. The NCAA, he believes, “want schools to be competing among themselves” on the basis of ‘hey, come here and we will provide for you the best academic, athletic, and student life experience.’ If you start any kind of economic benefits, individual economic benefits, over and above that amount, it’s starting to look more like a professional model and it raises competitive balance issues.” In any case, he continued, the NCAA and its member colleges and universities are nonprofit institutions and the colleges provide educational services, so any lack of educational benefit compensation to athletes is not driven by a desire to accumulate capital. “You don’t have shareholders or owners that are taking money out, any profits or anything,” Mitten said. The Supreme Court, though, did not find that argument convincing when it held, in 1984, that the Sherman Act barred the NCAA from restricting member colleges’ ability to obtain contracts to broadcast college football games on television.

For Milstein, the importance of the case comes down to something more fundamental: the reality that most college athletes will never turn professional after graduation. “For the most part, the student athletes, 99% of the student athletes, when they leave college, [they] will never make a dollar on their athletic achievements,” he said. Milstein also pointed out that athletes take genuine risks to participate. They are “competing and risking their future health just for the love of the competition,” he said. Milstein worries that the Supreme Court took the case for the express purpose of ensuring that college athletes have even less avenues to be compensated for their work. “Everybody’s making a fortune off these kids,” he said. “You get these complaints that somehow the kids are destroying the essence of amateur athletics, which is a myth anyway.”

Francis’ take on the importance of the case to college athletes is similar. He thinks the case is about plainly unfair treatment of college athletes. “I think it’s a pretty righteous case,” he said.

The cases do not involve any legal question relating to payment of salaries or wages to college athletes, Francis said. Briefs have not been filed, and argument had not been scheduled, as of press time.

This article appears in the Jan. 11 issue of Law Week Colorado. To read other articles from that issue, order a copy online. Subscribers can request a digital PDF of the issue.