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NCAA Sports: No Death Penalty Under the Antitrust Laws, Contributed by Philip D. Bartz and Nicholas S. Sloey, Bryan Cave LLP

Thursday, February 16, 2012

College football has been riddled over the past year with scandals, rule violations, and the movement of teams from one conference to another. Media coverage has been quite negative, and the National Collegiate Athletic Association (NCAA) often is cast as the villain. Well-regarded economist Andy Schwarz has attacked the NCAA’s amateurism model.1 Taylor Branch, a Pulitzer prize winning author, in a rigorous critique of the NCAA writes that while college athletes “are not slaves,” in taking a close look at college athletics one would “catch an unmistakable whiff of the plantation.”2 Strong stuff, indeed. In legal terms, critics such as Branch and Schwarz claim that the NCAA is an illegal cartel that artificially depresses the compensation that college athletes may receive from universities. In other words, they contend that the problems we see in college football are in large measure the result of NCAA antitrust violations that have resulted in college athletes not being paid and that college athletes must be paid, i.e. “pay-for-play”, under the antitrust laws. While a headline-grabbing position, as a legal matter the critics are simply wrong. The NCAA model is completely lawful under the antitrust laws. Indeed, as we explain below, the current problems in college football are primarily the result of the Supreme Court’s unduly restrictive application of the antitrust laws to the NCAA’s regulatory authority.

The Antitrust Laws and Sports Leagues

— Restraints With Respect to Sports Leagues Are Necessary to Create the Product

In a 2010 case before the Supreme Court, Justice John Paul Stevens wrote the following regarding the appropriate application of the antitrust laws to the National Football League (NFL): When “restraints on competition are essential if the product is to be available at all,” per se rules of illegality are inapplicable, and instead the restraint must be judged according to the flexible Rule of Reason. In such instances, the agreement is likely to survive the Rule of Reason. And depending upon the concerted activity in question, the Rule of Reason may not require a detailed analysis; it “can sometimes be applied in the twinkling of an eye.”3 In other words, when agreements are necessary to create a product at all, such as a sports league, courts have applied rule of reason analysis to determine whether the restraints that the teams may impose on each other by agreement are anticompetitive.4 Turning to college athletics and the issue of “pay-for-play,” as a business model the NCAA is a joint venture among competitors, e.g., colleges and conferences, which creates an amateur sports product that is comprised of players who attend college. The NCAA sets the terms on the kinds of incentives the schools can give student-athletes to play college sports at their particular school, e.g., scholarships, consistent with maintaining their amateurism. While a naked agreement between colleges and universities on what they charge students to attend college may well violate the antitrust laws, as with any sports league the NCAA has significant economic integration, and agreements that are ancillary to that economic integration are evaluated not as naked restraints, but in light of the economic integration.5 When NCAA members join together to determine whether college athletes are remunerated, it is a central component of the joint venture in creating a unique product of amateur collegiate athletics. As a result, the rules prohibiting student-athletes from being paid must be judged within the context of the entire NCAA joint venture that is designed to create a particular type of sports product, i.e., college sports.6

— NCAA v. Board of Regents of the University of Oklahoma

The foregoing legal concepts were applied in the early 1980s to an antitrust challenge to the NCAA’s control over the televising of college football games. It was the outcome of this antitrust case that has led to many of the issues that we see with college football today.

The Supreme Court Applied Rule of Reason Analysis to NCAA Rules

In 1951, the NCAA began studying the effects of television on NCAA football and designed a plan to utilize television in a way that would protect and enhance football games between NCAA members.7 According to the plan, a team could not appear on television more than twice per season.8 The 1951 plan received virtually unanimous support from the schools for limiting televised college football to one game per week with a total blackout for three of the ten weeks during the season.9 This model existed for over 25 years. By the late 1970s, the college football powers wanted a broadcast contract without sharing the revenue with non-football schools.10 As a result, a number of major football programs formed the College Football Association (CFA) and explored their broadcast options. In 1981, the CFA signed a contract with NBC, which provided for a greater number of appearances for each CFA institution than the NCAA plan, “and would have increased the overall revenues realized by CFA members.”11 After the NCAA threatened the CFA and its members with sanctions for violating the NCAA television plan, the University of Oklahoma and the University of Georgia brought an antitrust suit against the NCAA. The Supreme Court found that the NCAA’s restriction on broadcasting violated the antitrust laws.12 The Supreme Court applied the rule of reason (as opposed to per se analysis) because the “case involves an industry in which horizontal restraints on competition are essential if the product is to be available at all.”13 The Court recognized that the NCAA is like any sports league which requires that the competition be regulated by agreement.14 The Supreme Court elaborated further on the core procompetitive basis that gives the NCAA the ability to place significant restrictions on college football consistent with the rule of reason. Specifically, the Court stated: [T]he NCAA seeks to market a particular brand of football – college football… 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. And the integrity of the “product” cannot be guaranteed except by mutual agreement; if an institution adopted such restrictions unilaterally, its effectiveness as a competitor on the playing field might soon be destroyed. Thus, 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. In performing this role, its actions widen consumer choice – not only the choices available to sports fans but also available to athletes – and hence can be viewed as procompetitive.15 In other words, the basic antitrust inquiry when evaluating NCAA restrictions on Division I football – now the Football Bowl Subdivision (FBS) – is how closely related is the restriction to the procompetitive objectives of the NCAA, and to what extent is that competitive benefit offset by any anticompetitive effect.

The Supreme Court’s Application of the Rule of Reason Takes a Narrow View of the NCAA’s Mission

While recognizing the many procompetitive benefits of NCAA rules, the Supreme Court struck down the NCAA’s television plan because it was deemed a price and output restriction that did not have sufficient countervailing competitive benefits to offset the plan’s adverse effect on competition.16 Without the NCAA’s restrictive plan, teams would have been free to sell their own television rights, which would have allowed many more games to be shown on television.17 In addition, the Court found the procompetitive benefits of protecting live attendance and maintaining competitive balance were not sufficient to offset the anticompetitive effect of the rules.18 Justice White, joined by Justice Rehnquist, dissented in Board of Regents on the ground that the NCAA’s television plan was reasonably related to the NCAA’s preservation of amateurism. Contrary to the majority, Justice White believed that allowing wide dissemination of college football on television would make the sport awash in cash which would lead to the over-commercialization of college athletics.19 Excessive commercialization, in turn, would blur the lines between amateurism and professional sports, and interfere with the NCAA’s goal of using college athletics to supplement, rather than inhibit, educational achievement.20 What Justice White foresaw in 1984 has effectively come to pass. The movement of teams from conferences is tied to the pursuit of ever increasing amounts of television revenue.21 With so much television revenue associated with college football, the concept of amateurism is eroded, and corruption follows in the form of scandals and rules violations. If the NCAA had not been stripped of its authority over broadcasting in 1984, many of the problems we see today could have been controlled. At bottom, Justice White understood the proper application of the antitrust laws to the NCAA with respect to its product and mission, and the majority unduly restricted the authority of the NCAA, which has led to the current problems in college athletics. The purpose of this article is not to revisit the past, however, but to analyze NCAA restrictions under the law as it currently exists to determine whether restrictions on paying student-athletes are permissible under the antitrust laws. Under the Board of Regents framework, restrictions on “pay-for-play” do not violate the antitrust laws.

NCAA Restrictions on “Pay-For-Play” are Plainly Lawful

The NCAA is a unique product as it is both a college-sports league and an amateur-sports league. As the Supreme Court recognized in Board of Regents, “to preserve the character and quality of the ‘product,’ athletes must not be paid, must be required to attend class and the like.” In this respect, the NCAA is no different than other leagues that limit eligibility on various grounds, such as Little League, Junior Hockey, Pop Warner football, AAU, and the Olympics. With respect to the NCAA, the unique quality of the athletes is that they are college students who are also amateurs.

— Athletes Must Be Students in Good-Standing in the NCAA Model

The first unique aspect of college sports is that the athletes are students. There is little antitrust concern that the NCAA is acting unreasonably when it requires players to be students that meet certain academic standards. Yet it must be understood that the minimum academic standards in the NCAA bylaws are plainly a restriction on the competitive terms on which universities and colleges would otherwise compete for student-athletes. Without the academic bylaws, a school could offer decreased academic requirements,22 lower GPA thresholds,23 or diminished degree progress benchmarks24 in an effort to entice athletes to play for them as opposed to another institution. Consequently, the NCAA academic standards have an anticompetitive effect, particularly on less academically gifted student-athletes. No one seriously suggests, however, that academic requirements are unreasonable restraints of trade. After all, the players are in school primarily to get an education, not play sports. As NCAA critic Andy Schwarz writes: The reasonableness and necessity of the collective agreement on ensuring that college athletes really go to college is an excellent contrast with the lack of reason for or necessity of the NCAA’s collective agreement on athlete compensation… What makes college sports so popular is the unique combination of high-quality athletics combined with the notion that the athletes attend school and truly represent the school in competition. This makes the NCAA rule that college athletes be college students procompetitive...25 Schwarz recognizes that the NCAA academic requirements are a key component of the attractiveness of the collegiate-sports product. As Schwarz understands, if colleges began excusing student-athletes from attending classes, maintaining a minimum GPA, or making progress toward a degree – essentially eliminating the academic eligibility requirements – the product of college athletics would not be differentiated from minor league professional sports, which are far less popular than college athletics.

— College Athletes Must Be Amateurs in the NCAA Model

The second key prong of the NCAA model is that the athletes also must be amateurs. It is this aspect of the collegiate sports product that Branch and Schwarz argue is illegal. Upon examination, that is simply not the case. Amateurism is at the very core of the product the NCAA creates. Requiring amateurism is no different in purpose and effect than the bylaws on academic standards. To be sure, both the academic standards and amateurism rules may have an adverse effect on certain athletes, but under the antitrust laws those rules are judged against the overall creation of the NCAA product, not on some cherry-picked stand-alone basis. Allowing “pay-for-play” would almost certainly negatively impact the attractiveness of college football and basketball. The combination of student and amateur as athlete is a product that consumers plainly want, as the current popularity of college sports demonstrates. The antitrust laws do not require the NCAA to abandon its unique and popular product simply because it is successful. Indeed, if consumers were not receiving a product they wanted, and if players were not getting reasonably compensated for their services, market forces would drive the creation of competitive leagues that would siphon fans and players away from NCAA sports. It is telling that such efforts have been attempted and failed. In 2008, the All American Football League (AAFL) was created. The league was designed to consist of players that had exhausted their college eligibility or graduated college, but failed to make an NFL team. The league would play its games in the Spring so it would not compete directly against college football. The AAFL teams would play in areas of the country where college football is extremely popular, and the teams would consist of players that played college football at a university in that team's state or a neighboring state – in an attempt to maximize the existing connections between fans, players and colleges.26 Early reports were that players would receive between $50,000 to $100,000 per season.27 The AAFL has never played a game. The United Football League (UFL) is another example of an attempt to create a product to compete with NCAA football. The UFL played its inaugural season in 2009. The UFL was intended to provide quality, affordable football to underserved markets.28 It has been recognized by others as a minor-league with a chance to be a developmental league for the NFL.29 However, the future of the UFL is in doubt. In the middle of its 2011 season, the UFL announced it was shortening its regular season by two games and would move straight to a championship. The unpopularity of both the AAFL and the UFL serve to demonstrate the delicacy of the unique product that is NCAA sports. It is evident that the NCAA provides a special product that consists of amateur athletes that are also students attending specific educational institutions. The failures of the AAFL and the UFL demonstrate that even modest changes to this delicate balance can lead to a product that consumers do not want. Indeed, the Branch and Schwarz view that the NCAA should scrap its amateurism requirements makes as much sense as Coca-Cola changing its formula and introducing “New Coke” in 1985. In any event, such a change is not required by the antitrust laws. The importance of the amateurism aspect of the NCAA model makes clear that there should be a summary approach under the antitrust laws to analyzing NCAA rules that are designed to preserve amateurism. It should not be enough to state an antitrust claim against the NCAA simply that a rule has an adverse effect on some athletes, e.g., the academic bylaws' effect on less academically gifted athletes. Rather, without a clear theory in an antitrust complaint as to how a challenged rule is unnecessary to secure the NCAA’s overall amateurism and academic sports model, a case challenging that NCAA rule should not be allowed to proceed. To elaborate, the antitrust laws offer a type of analysis known as “quick look,” which is a hybrid of per se and rule of reason analysis. “Quick look” analysis “allows the condemnation of a ‘naked restraint’ on price or output without an ‘elaborate industry analysis.’”30 What we suggest here is a “reverse quick look.” A reverse quick look would permit a court to dismiss a challenge to an NCAA rule that is necessary within the overall purpose of creating the unique product that is NCAA football and basketball. As Justice Stevens wrote in American Needle, “depending upon the concerted activity in question, the Rule of Reason may not require a detailed analysis; it ‘can sometimes be applied in the twinkling of an eye.’”31 Such should be the case with most NCAA restrictions designed to protect the unique NCAA college sports product.32

Conclusion

The NCAA model is not illegal under the antitrust laws. The NCAA’s amateurism restrictions have been found legal in significant part because they increase opportunities for fans and athletes and, therefore, are procompetitive. In sum, while the NCAA model may not be perfect, it is plainly quite good. The popularity of college football and basketball is at an all-time high. The NCAA is enacting more rigorous academic standards, to ensure that the athletes are in fact receiving a good education. Women and non-revenue sports are flourishing. All this flows from the NCAA’s amateurism model. The NCAA should continue to strive to make its model better and stronger, but not turn college sports into a pure business as the critics suggest and destroy the dynamic benefits that its amateurism model provides. 

Mr. Bartz is a partner, and Mr. Sloey an associate, in the Washington office of Bryan Cave LLP, and represent the NCAA. The views expressed in this article are solely those of the authors and not those of Bryan Cave LLP or its clients.

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