What the Latest NCAA Decision Misses: The Emperor’s New Clothes

For decades, the NCAA has been treated with proverbial kid gloves by the Supreme Court, as demonstrated by the deferential language in NCAA v. Regents of the University of Oklahoma, 468 U.S. 85 (1984) and NCAA v. Tarkanian 488 U.S. 179 (1988). In Regents, the Supreme Court determined that, despite horizontal price-fixing and output limitations in an anti-trust challenge, the NCAA would not be subject to the more rigorous per se standard of review. Rather, because of the unique nature of the product, collegiate athletics, the more affable rule of reason would apply:

” . . . the NCAA plays a vital role in enabling college football to preserve its character, and as a result enables a product to be marketed which might otherwise be unavailable.” 468 U.S. at 102.

This significant preferential treatment for anti-trust purposes was justified by the Supreme Court on the basis that:

“In order to preserve the character and quality of the “product,” athletes must not be paid, must be required to attend class, and the like.” Ibid.

Similarly, in Tarkanian, in holding that the NCAA did not have sufficient power to coerce the University of Nevada at Las Vegas into terminating Jerry Tarkanian’s employment, and thereby finding that the NCAA was not a “joint actor” with UNLV rendering it a state actor subject to due process, the majority stated:

“The university’s desire to remain a powerhouse among the Nation’s college basketball teams is understandable, and nonmembership in the NCAA obviously would thwart that goal. But that UNLV’s options were unpalatable does not mean that they were nonexistent.” 488 U.S. at 198.

In this infamous footnote 19 to the majority opinion, the Supreme Court dismissed UNLV’s contention that it had no practical option in the face of a show cause ultimatum from the NCAA: terminate Tarkanian, face additional, significant NCAA penalties or withdraw from the NCAA. Seriously? Withdraw from the NCAA and start your own league? In 1984, the barriers to entry for forming another collegiate association were impossibly high. Cable TV was just starting to get a foothold; streaming was nowhere to be found. Even the storied UNLV program would have had tremendous hurdles to overcome if it tried to retain its legendary coach and convince other institutions to withdraw from the NCAA to form an alternative league.

The underlying premise in both cases is key to the outcomes: the NCAA, a hallowed institution formed at the urging of President Teddy Roosevelt in 1905 (to address violence and fatalities in football) serves a unique role as the guardian of amateur collegiate athletics. Consequently, it deserves deference and credibility in courts of law so that consumers may enjoy amateur collegiate athletics because without the NCAA that product would not exist. In anti-trust parlance, that constitutes pro-competitive justification for restrictions, such as limits upon athlete compensation, that would otherwise fall afoul of the Sherman Act. In the realm of due process, that deference equates to a tolerance for strong-arm tactics upon state institutions that are viewed as less than coercive, and therefore not “joint action” for purposes of establishing state action.

Judge Claudia Wilken’s decision in In Re: NCAA Grant-in-Aid Anti-Trust Litigation (commonly known as Jenkins v. NCAA), the landmark anti-trust challenge to NCAA athlete compensation restrictions, is grounded upon evidence that completely refutes the Supreme Court’s perspective of the NCAA – while still maintaining some of the historical protections. Judge Wilken found that the NCAA’s restrictions upon student-athlete compensation for education-related expenses violates Section 1 of the Sherman Anti-Trust Act. Under Section 1 of the Sherman Act and the Rule of Reason, applied to the NCAA per Regents, once the plaintiff establishes a combination that unreasonably restrains trade in a defined market, the burden shifts to the defendant to show that the restriction at issue is actually pro-competitive. Here, the combination in restraint of trade is the adoption by the NCAA member institutions of rules which prevent student-athletes from receiving compensation. The market at issue was defined in summary judgment as a monopsony, or buyers market, in which FBS football players and mens and womens basketball players are unable to receive fair value for their talent due to these restraints. In such cases, the NCAA always relies upon its unique position as the bastion of amateur collegiate sports in the U.S. – which has usually resulted in court deference – as noted above. The NCAA’s argument is essentially that without its framework and comprehensive rules, amateur collegiate sports would not exist, therefore consumer choice is enhanced by its existence and pervasive regulation. In that vein, Judge Wilken’s decision states:

“The court does credit the importance to consumer demand of maintaining a distinction between college sports and professional sports.” In re:National Collegiate Athletic Association Grant-in-Aid Cap Antitrust Litigation at 49.

Significantly, however, NO empirical evidence is referenced to support this finding. Rather, testimony from specific witnesses to the effect that “”the people that are our fans who create that consumer demand would feel differently if college sports looked like professional sports”. Ibid. at 45. Importantly, while recognizing that student-athletes currently can receive even tens of thousands of dollars in compensation, the decision states:

“Accordingly, it follows that the distinction between college and professional sports arises because student-athletes do not receive unlimited payments unrelated to education, akin to salaries seen in professional sports. … Rules that prevent unlimited payments such as those observed in professional sports leagues, therefore, are pro-competitive when compared to having no such restrictions.” Ibid. at 45.

Clearly, this rationale is NOT based upon evidence, but upon assumptions not supported by data. Moreover, the conclusion is a non sequitur. There is NO reason to believe that consumers identify with collegiate sports as a separate product because student-athletes do not receive unlimited payments unrelated to education. Further, professional athletes in this time of salary caps do not receive unlimited payments, either. Judge Wilken’s conclusion in this regard is simply erroneous. A cap is a cap, whether in the amateur or in the professional realm.

The distinction Judge Wilken attempts to draw between non-cash education-related benefits and athletic-related benefits just doesn’t hold water. So does every student-athlete now get an opportunity to study abroad or get a graduate degree? That’s great – but there’s a monetary value for each of those, and it is disingenuous to pretend otherwise. Simply put, this is just another extension of the chimera at some high profile programs where a student-athlete is less a member of the student body and more a cog in a high profit machine.

Significantly, Judge Wilken abandons the pro-competitive justification relied upon in part in O’Bannon v. NCAA. In that case, the NCAA’s argument that caps upon student-athlete revenues from name, image and licensing revenues were critical to integration with the overall student body was accepted as a pro-competitive justification. In Jenkins, Judge Wilken acknowledges that there is no evidence to support this conclusion, and, in fact, it is likely that incremental amounts of compensation actually assist student-athletes in being able to participate in activities with other students. The extra pocket money may mean the ability to go to a concert with school friends that might not happen otherwise. Moreover, as Judge Wilken herself notes, there is already a tremendous disparity in student wealth on many campuses that has nothing to do with athletics.

The bottom line, however, that underscores the decision in Jenkins – and flatly contradicts the underlying assumptions in the Supreme Court cases in Regents and Tarkanian – is the evidence showing “recent increases in student-athlete compensation related and even unrelated to education, have not decreased consumer demand for Division I basketball or FBS football“. (Emphasis added.)
In re:National Collegiate Athletic Association Grant-in-Aid Cap Antitrust Litigation at 59. Period. There it is.

Following the O’Bannon case, the NCAA relaxed its restrictions upon compensation to athletes in various forms, including premiums for loss of value insurance, athletic achievement awards and other items that can total upwards of $10,000 per student-athlete. Despite this, the evidence presented in Jenkins demonstrates that media revenues actually INCREASED, reflecting an ACCELERATION of demand for the NCAA product.

What does this mean? Clearly, the premise upon which both Regents and Tarkanian – and now, Jenkins – are based – is fundamentally flawed. The demand for NCAA Division I basketball and FBS football is not tied to consumers’ perception of amateurism, but to some other factor or combination of factors not reflected in the evidence presented in any of these cases. Is it institutional loyalty? Geographic proximity? Just another forum for athletic competition? Whatever the answer may be, the NCAA’s success clearly does not depend upon an amorphous distinction between professional and amateur athlete status defined by its inconsistent and even arbitrary bylaws. As Judge Wilken notes, historically, the NCAA itself has been at a loss to define amateurism, except perhaps by what it ISN’T.

Consequently, the Jenkins decision, which attempts to strike a balance between clearly anti-competitive practices and the judicial tradition of deference to the NCAA’s hallowed status, is flawed. While the conclusion – the NCAA’s restrictions upon athlete compensation violate the Sherman Act – is correct – the rationale, which then serves to limit the application of that conclusion, is erroneous. Each of these cases – Regents, Tarkanian and Jenkins, is based upon inaccurate assumptions about the true state of the collegiate sports industry to differing degrees. It is not a crime to establish and administer a successful collegiate athletic program; however, in doing so it is imperative to recognize and administer the law in that context.

So, for example, professional sports leagues receive Rule of Reason treatment under the anti-trust laws due to the recognition that the administration of any league requires some coordination among potential competitors. That is also true of the NCAA – but the preferential treatment should stop there. The NCAA should no longer get a free pass or limited scrutiny for anti-trust, due process or any other purpose because of its status as the arbiter of collegiate sports in the U.S. The NCAA is a business – a big business. Again, that is not a crime, but it should be subject to regulation as such.

At bottom, it is imperative for the courts – and the NCAA – to acknowledge the fact that the NCAA is in fact a big business with tremendous revenues which currently are not shared with the student-athletes who are critical to its success. While the dynamics of the amateur sports marketplace vary widely among conferences and schools, it is imperative that both the courts and the NCAA recognize and address the vast discrepancies that exist and treat the student-athletes and the institutions involved accordingly. Pretending that in all cases the student-athletes are amateurs in the purest sense of the definition is analogous to ignoring the existence of the emperor’s new clothes. The pressing issues of the current model cannot be addressed without recognizing the practical realities underlying the equipment.

Image credit: WKYT.com

Leave a Reply

Powered by WordPress.com.

Up ↑

%d bloggers like this: