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Mo’ Money, Mo’ Problems: An Analysis of In Re NCAA Athletic Grant-in-Aid Cap Antitrust Litigation [958 F.3d 1239 (9th Cir. 2020).]

Benjamin S. Bigham | May 28, 2021 | PDF Version (207 KB)

Summary: In In re NCAA Athletic Grant-in-Aid Cap Antitrust Litigation, the Ninth Circuit Court of Appeals held that the NCAA violated Section I of the Sherman Act by placing restrictions on educational benefits available to student-athletes as forms of compensation. This opinion has now been granted a writ of certiorari by the U.S. Supreme Court and will be reviewed to determine if the lower court correctly held that the NCAA violated federal antitrust laws with its current compensation structure. This Comment will evaluate likelihood of success of the holding rendered by the Ninth Circuit Court of Appeals in In re NCAA Athletic Grant-in-Aid Cap Antitrust Litigation. Ultimately, this Comment will describe why—given the recent developments in case law concerning NCAA compensation rules, the narrow holdings in the lower courts, how concretely the relevant market is defined, and the shifting public opinion in favor of compensating student-athletes—the Supreme Court should affirm these holdings and find that the NCAA has violated Section I of the Sherman Act.

Preferred Citation: Benjamin S. Bigham, Mo’ Money, Mo’ Problems: An Analysis of In Re NCAA Athletic Grant-in-Aid Cap Antitrust Litigation, 60 Washburn L.J. Online 113 (2021), https://washburnlaw.edu/wljonline/bigham-mo-money-mo-problems.

I. Introduction

One of the most passionately debated topics throughout American sports today is how the National Collegiate Athletic Association (“NCAA”) compensates college athletes for their participation in collegiate sports. With profits in college sports higher than ever, many have begun to question if the current compensation method by the NCAA for amateur college athletes is fair to the student-athlete.[1] Presently, student-athletes are entitled only to a limited number of educational benefits while playing sports at their respective colleges. Per the NCAA, this limit on educational benefits for student-athletes ensures the distinction between college and professional sports is maintained for consumers of sports across the United States and the world.[2]

These limitations on educational benefits have been called into question in In re NCAA Athletic Grant-in-Aid Cap Antitrust Litigation by current and former collegiate football and basketball players.[3] After a favorable decision for the former and current student-athletes in the Ninth Circuit Court of Appeals, the U.S. Supreme Court granted certiorari to determine whether these caps on educational benefits violate SectionI of the Sherman Act.[4] In other words, the Supreme Court is reviewing whether the NCAA may continue to place restrictions on educational benefits available to student-athletes. This Comment aims to predict the validity of the current and former student-athletes’ claims against the NCAA and their overall likelihood of success in the Supreme Court.

Ultimately, it is more likely than not that the Supreme Court will hold in favor of the student-athletes and affirm the holding of lower courts that the NCAA violated SectionI of the Sherman Act.

II. Background

To understand the likelihood of In re NCAA’s outcome at the Supreme Court, SectionA describes the facts of In re NCAA and explains the student-athletes’ articulation of what constitutes a violation of SectionI of the Sherman Act. SectionB outlines the elements a party must satisfy to prove a violation of SectionI in greater detail. Lastly, SectionC analyzes a successful establishment of a SectionI violation that is relevant to the facts of In re NCAA.

A. In re NCAA

In In re NCAA, former and current student-athletes contested the validity of restrictions to education-related benefits enforced by the NCAA against colleges that have student-athletes participate in the Football Bowl Subdivision and DivisionI basketball leagues maintained by the NCAA.[5] Both the district court and Ninth Circuit Court of Appeals held that the NCAA violated SectionI of the Sherman Act by placing limits on educational benefits available to student-athletes as compensation.[6]

Before analyzing the district court and Ninth Circuit court rulings, it is first necessary to understand how the NCAA currently compensates student-athletes through educational benefits. The NCAA currently caps the educational benefits available to student-athletes participating in NCAA-sponsored athletic events at the cost of attendance at their respective universities.[7] Cost of attendance includes tuition and fees, room and board, books, and other related expenses.[8] Above all, the NCAA prohibits student-athletes from using their athletic skills to solicit payment in any form that the NCAA does not explicitly permit.[9]

Regardless of these limitations, the NCAA permits many different types of compensation—some related to education and others not—as exceptions to the rules.[10] Because of the exceptions to the educational benefits restriction, the current and former student-athletes in this case characterized the NCAA’s limits as anticompetitive, and therefore, a violation of SectionI of the Sherman Act.[11]

B. The Sherman Act

SectionI of the Sherman Act prohibits unreasonable restraints on trade affecting interstate commerce.[12] The Sherman Act was enacted in 1890 to prohibit the development of monopolies in the United States by ensuring companies do not control prices in a relevant market.[13] The Sherman Act’s purpose is to promote economic fairness and competition in interstate commerce.[14]

Although the Sherman Act is a federal statute enacted by Congress, its interpretation was left largely up to the courts. These different court interpretations throughout the United States have led to the development of several elements that a party must establish for any claim under SectionI of the Sherman Act to succeed. The first step in any antitrust litigation arising under the Sherman Act is to define the relevant market affected by the alleged unlawful restraints on trade.[15] The relevant market is the location where the competition of the business primarily exists.[16] It must include both (1) a geographic market and (2) a product market.[17]

Once the relevant market is defined, whether the business possesses a monopoly power within that market must be determined.[18] Monopoly power may typically “be inferred from the predominant share of the market.”[19] To find a predominant share of the relevant market, the business must command more than 50 percent of the market.[20]

Once a monopoly power within the defined relevant market is identified, the next step for complaints involving sports institutions, such as the NCAA, is to evaluate if the restrictions imposed by the institution are unreasonable under a Rule of Reason analysis.[21] The Rule of Reason analysis is a three-step burden shifting framework: (1) the plaintiff alleges a restraint that causes substantial anticompetitive effects in the relevant market; (2) the entity accused of violating the Sherman Act must offer a procompetitive purpose for their anticompetitive conduct; and (3) if the procompetitive purpose offered by the entity is reasonable, then the plaintiff must show that the procompetitive purpose of the restrictions can be achieved in a much less restrictive manner.[22] If the less restrictive alternatives offered by the plaintiffs are reasonable and still achieve the procompetitive purpose offered by the entity, the court can enjoin the entity to cease the challenged restraints in the relevant market and adhere the entity’s conduct to the less restrictive means offered by the plaintiff.[23]

C. O’Bannon v. NCAA

There are limited examples of restrictive conduct by sports institutions that courts have held violate SectionI of the Sherman Act, and thereby failed the Rule of Reason analysis. However, some cases have recently gained traction.[24]

In 2015, the Ninth Circuit in O’Bannon v. NCAA (O’Bannon II) held that the NCAA violated SectionI of the Sherman Act with its blanket refusal to compensate student-athletes above a grant-in-aid cap that was below the cost of attendance at their respective universities.[25] The court found the procompetitive purpose offered by the NCAA—ensuring that student-athletes participating in NCAA athletics are viewed as amateurs—legitimate.[26] However, the court believed this purpose could still be accomplished even if student-athletes were compensated their complete cost of attendance at their respective universities.[27] In other words, the court reasoned that paying student-athletes enough to utilize other educational benefits at their universities, beyond the cost of attendance, would not alter consumer opinions on amateurism enough to preclude the allowance of permitting this additional compensation.[28] This decision caused a snowball effect, resulting in the NCAA enacting many of the exceptions to compensation rules.

As a result, O’Bannon II initiated NCAA rule changes to compensation limits that give student-athletes access to more educational benefits than ever before. Additionally, the case opened the door to further challenges to NCAA compensation limits on non-cash educational benefits.

III. Court’s Decision

In In re NCAA, the trial court ruled, and the appellate court affirmed, that the former and current student-athletes satisfied the Rule of Reason analysis and established that the limitations placed on educational benefits were unreasonable and violated SectionI of the Sherman Act.[29]

The Ninth Circuit began by defining the relevant market and determining if the NCAA commanded a monopoly power within it.[30] The court adopted the relevant market proposed by the current and former student-athletes, which the athletes defined as sporting events where student-athletes perform athletic services in exchange for athletic scholarships and other compensation allowed by the NCAA.[31] Of this relevant market, the NCAA commands approximately 100 percent of it, more than enough to establish a monopoly power.[32]

The court then analyzed the anticompetitive effects of artificially capping the educational benefits, a cap determined exclusively by the NCAA.[33] Student-athletes do not have viable alternatives to DivisionI NCAA schools for elite-level competition beyond high school and non-professional play.[34] Thus, the court believed that student-athletes are essentially forced to accept the compensation rules of the NCAA in its entirety—regardless of whether the caps enforced accurately reflect the student-athletes’ value of their play in the NCAA’s athletic events.[35] The fact that the NCAA dominates the only market that provides such athletic opportunities for high-level student-athletes, and arbitrarily caps the athletes’ compensation potential, was enough for the court to conclude that the compensation methods were anticompetitive.[36]

It is important to note, however, that the current and former student-athletes also attempted to establish that other restrictions imposed by the NCAA were anticompetitive.[37] The former and current student-athletes tried to establish that the NCAA’s prohibition of compensation unrelated to education, such as cash payments and endorsement deals, also violated SectionI of the Sherman Act.[38] The court rejected this argument wholeheartedly, explaining that the procompetitive justification offered by the NCAA was effective in ensuring that student-athletes were not confused with professionals, and ultimately, these restrictions were in place to protect the NCAA’s consumer product.[39]

Next, the NCAA offered a procompetitive justification for its caps on educational benefits that, if valid, would overcome the caps’ anticompetitive effects. The NCAA claimed that the caps to both education and non-education benefits are in place to “maintain[] a distinction between college sports and professional sports.”[40] Although this is applicable and true for non-education-related compensation restrictions, the court held this argument failed as applied to educational benefits.[41] The court reasoned that because non-cash educational benefits are inherently attached and capped at the value of its educational purpose, these non-cash educational benefits cannot possibly be confused with the salary of an actual professional athlete.[42] So long as the cap on educational benefits is the only cap removed, the amateur model remains completely intact, and the NCAA still achieves its procompetitive purpose.[43] Further, the NCAA has itself loosened its restrictions on educational benefits, both because of previous court rulings, and because the total revenue generated by student-athletes has continued to climb steadily.[44]

Finally, the last element of the Rule of Reason analysis was satisfied because the compensation model proposed by the student-athletes is a less restrictive way to still achieve the NCAA’s procompetitive purpose. The allowance of additional educational benefits, such as computers, science equipment, and other items not currently allowed under the NCAA cost of attendance limitations, would not alter the amateur status of student-athletes to the common consumer, preserving the purpose of maintaining the distinction between collegiate and professional sports.[45]

The court also found that allowing schools to compensate student-athletes with additional educational benefits would only stand to benefit student-athletes.[46] Because universities that participate in NCAA sports compete with one another for recruiting student-athletes, each school strives to provide “the best educational experience [to student-athletes.]”[47] More competition in recruiting improves the products and services the NCAA offers to its consumers.[48]

Ultimately, the court held that the current and former student-athletes’ argument passed the Rule of Reason analysis required to establish a claim under SectionI of the Sherman Act.

IV. Commentary

The U.S. Supreme Court should adopt the ruling in In re NCAA in its entirety for the following reasons. First, the former and current student-athletes brought their case in an era where the trend of educational benefits given to student-athletes by the NCAA is becoming more expansive. Second, the requested relief was appropriately narrow with a clearly articulated relevant market, and finally, the student-athletes brought their claim during a shift of public opinion in favor of the compensation of student-athletes.

A. A New Era in NCAA Compensation

The timing of In re NCAA could not have been better for the current and former student-athletes’ chance of success in the Supreme Court. This dispute comes on the heels of the O’Bannon II decision, which held that limitations on educational benefits compensation, capped at an arbitrary grant-in-aid amount that is often lower than the full cost of attendance at a university, violated SectionI of the Sherman Act.[49] The court in In re NCAA did not need to invent the holding that any limitations on educational benefits violate SectionI of the Sherman Act. Instead, it used O’Bannon II to merely expand this holding to all limitations on non-cash educational benefits by the NCAA.[50] Because the lower courts merely applied the precedent of O’Bannon II to the present case, ruling against the current and former student-athletes would likely require the Supreme Court to overrule both In re NCAA and O’Bannon II.[51] Although the Supreme Court is free to do so, the existence of available precedent applicable to the present case makes the prospect of the Court overruling both holdings less likely, so long as the lower courts properly applied precedent.[52]

B. Relief Requested and Market Definition

The compensation limits found by the lower courts to violate SectionI of the Sherman Act are appropriately narrow to survive review by the Supreme Court. Courts have generally agreed that the NCAA’s procompetitive purpose of its compensation limits—to preserve its amateur sports product—is a valid one.[53] Consequently, to promote this procompetitive purpose, the NCAA may appropriately restrict any additional compensation that the average collegiate sports fan would consider professional-level compensation, usually a cash payment or salary.[54]

However, courts have also consistently interpreted non-cash educational benefits as a distinguishable form of compensation—one that cannot be confused with a professional athlete’s salary.[55] In In re NCAA, the lower courts appropriately and correctly held that the NCAA’s restrictions on non-educational benefits as a form of compensation do not violate SectionI of the Sherman Act because such restrictions further the NCAA’s procompetitive purpose.[56] The lower courts have held only that NCAA limitations on non-cash educational benefits violate SectionI of the Sherman Act, which is entirely consistent with available precedent.[57]

Additionally, many challenges to the NCAA’s student-athlete compensation rules fail because the challengers do not clearly articulate the relevant market affected by anticompetitive conduct of the NCAA.[58] Here, the lower courts have clearly articulated the relevant market, and the Supreme Court will not be forced to reverse and remand the case to define a relevant market.[59] The Supreme Court can simply take the defined relevant market, view how precedent was applied to the limitations on educational benefits by the lower courts, and affirm their holdings, if applied correctly.[60]

C. Changing Public Opinion

Public opinion is shifting toward increasing compensation limits to student-athletes in the NCAA, which increases the difficulty for the NCAA to establish the legitimacy of their procompetitive purpose offered for the non-cash educational benefits limitations. Of the studies offered in support of the NCAA’s position in the In re NCAA opinion, the court found all of them to be unpersuasive or nonconclusive.[61] Even the NCAA’s own expert testified that the NCAA does not perform any product demand studies to develop its limitation on educational benefits, and instead, the NCAA arbitrarily sets the limits wherever it deems them appropriate.[62] Further, experts testifying on behalf of the student-athletes introduced a survey finding no observable effect on consumer demand for NCAA athletic events even if student-athletes were given an additional $20,000 in educational benefits.[63]

Additionally, some states have introduced bills or passed laws in support of allowing student-athletes to receive compensation beyond just educational benefits.[64] This is a result of public opinion, cited from additional studies not included in In re NCAA, indicating increased support from NCAA fans for student-athletes to be compensated beyond the educational benefits presently offered by the NCAA.[65]

Lastly, since the NCAA has introduced exceptions to its compensation rules in the wake of the O’Bannon II opinion, NCAA revenue has steadily increased. This directly contradicts the NCAA’s stance that the introduction of these exceptions to non-cash educational benefits would diminish consumer appeal.[66]

V. Conclusion

The U.S. Supreme Court will have no choice but to affirm the holdings of the Ninth Circuit Court of Appeals, because first, student-athletes challenged the NCAA’s limits on educational benefits in the wake of the O’Bannon II decision, second, the relief they sought has been accurately defined and narrowed by the lower courts, and third, public opinion has shifted toward increasing compensation available to student-athletes. If the Court affirms In re NCAA, the NCAA will be restricted from limiting the educational benefits available to student-athletes. With these restrictions removed, student-athletes across the country will finally be able to realize the full expanse of educational benefits available to them at their respective universities and will greatly benefit as a result.

 

1. The National Collegiate Athletic Association’s (“NCAA”) total athletics revenue in 2019 was approximately $18.9 billion.  Finances of Intercollegiate Athletics, NCAA, https://www.ncaa.org/about/resources/research/finances-intercollegiate-athletics [https://perma.cc/R6YP-2R6R] (last visited May 4, 2021). [Return to Text]

2. Alston v. NCAA (In re NCAA Athletic Grant-in-Aid Cap Antitrust Litig.), 958 F.3d 1239, 1249 (9th Cir. 2020). [Return to Text]

3. Id. [Return to Text]

4. NCAA v. Alston, 141 S. Ct. 1231 (2020) (mem.). [Return to Text]

5. In re NCAA, 958 F.3d at 1249. [Return to Text]

6. Id. at 1243–44. [Return to Text]

7. Id. at 1243. [Return to Text]

8. Id. at 1244. [Return to Text]

9. Id. [Return to Text]

10. Id. at 1244–45.  These exceptions include, but are not limited to, athletic participation award payments, disbursements from the NCAA’s Student Assistance Fund, cash stipends to cover costs of attendance beyond tuition that student-athletes may use at their sole discretion, and per diem payments for incidental expenses accrued by student-athletes during travel and practice.  Id. [Return to Text]

11. See In re NCAA Athletic Grant-in-Aid Cap Antitrust Litig., 375 F. Supp. 3d 1058, 1067–68 (N.D. Cal. 2019).  The student-athletes then reasoned that because collegiate sports revenue has steadily increased, even with these numerous exceptions in place, the NCAA no longer needs to limit their compensation methods so strictly.  In re NCAA, 958 F.3d at 1245. [Return to Text]

12. State Oil Co. v. Khan, 522 U.S. 3, 10 (1997); 15 U.S.C. § 1 (2018). [Return to Text]

13. Will Kenton, Sherman Antitrust Act, Investopedia (Oct. 20, 2020), https://www.investopedia.com/terms/s/sherman-antiturst-act.asp [https://perma.cc/YLS4-AF94]. [Return to Text]

14. Id. [Return to Text]

15. Khan, 522 U.S. at 10. [Return to Text]

16. Fed. Trade Comm’n v. Qualcomm Inc., 969 F.3d 974, 992 (9th Cir. 2020). [Return to Text]

17. Id.  The product market must also include all interchangeable substitutes to it.  Id.  Typically, a plaintiff will want to define the relevant market as narrowly as possible, while a defendant will try to broaden the relevant market, so parties fiercely litigate which products are counted as substitutes.  See id.  For a substitute product to be interchangeable, the cost to acquire the substitute product must be reasonable, must significantly support the same functions of the primary product, and must be cross-elastic with the primary product.  See United States v. Microsoft Corp., 253 F.3d 34, 52 (D.C. Cir. 2001). [Return to Text]

18. Qualcomm Inc., 969 F.3d at 993. [Return to Text]

19. United States v. Grinnell Corp., 384 U.S. 563, 571 (1966). [Return to Text]

20. U.S. Dep’t of Just., Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act 21–22 (2008), https://www.justice.gov/sites/default/files/atr/legacy/2008/09/12/236681_chapter2.pdf [https://perma.cc/JZ5A-D2JS]. [Return to Text]

21. In re Nat’l Football League’s Sunday Ticket Antitrust Litig., 933 F.3d 1136, 1150 (9th Cir. 2019), cert. denied sub nom. Nat’l Football League v. Ninth Inning, Inc., 141 S. Ct. 56 (2020) (mem.). [Return to Text]

22. Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018). [Return to Text]

23. See 15 U.S.C. § 4 (2018); Alston v. NCAA (In re NCAA Athletic Grant-in-Aid Cap Antitrust Litig.), 958 F.3d 1239, 1263–64 (9th Cir. 2020). [Return to Text]

24. See O’Bannon v. NCAA (O’Bannon II), 802 F.3d 1049, 1079 (9th Cir. 2015). [Return to Text]

25. Id. [Return to Text]

26. Id. [Return to Text]

27. See id. [Return to Text]

28. See id. [Return to Text]

29. Alston v. NCAA (In re NCAA Athletic Grant-in-Aid Cap Antitrust Litig.), 958 F.3d 1239, 1249, 1265 (9th Cir. 2020). [Return to Text]

30. Id. at 1248. [Return to Text]

31. Id. [Return to Text]

32. See id. [Return to Text]

33. Id. at 1256. [Return to Text]

34. Id. at 1256–57. [Return to Text]

35. Id. [Return to Text]

36. Id. [Return to Text]

37. Id. at 1250. [Return to Text]

38. Id. [Return to Text]

39. Id. at 1251. [Return to Text]

40. Id. at 1250 (quoting In re NCAA Athletic Grant-in-Aid Cap Antitrust Litig., 375 F. Supp. 1058, 1082 (N.D. Cal. 2019)). [Return to Text]

41. Id. at 1251. [Return to Text]

42. Id. [Return to Text]

43. See id. [Return to Text]

44. Id. at 1258. [Return to Text]

45. Id. at 1251. [Return to Text]

46. Id. at 1261. [Return to Text]

47. Id. (internal quotation marks omitted). [Return to Text]

48. See id. [Return to Text]

49. O’Bannon v. NCAA (O’Bannon II), 802 F.3d 1049 (9th Cir. 2015). [Return to Text]

50. In re NCAA, 958 F.3d at 1254. [Return to Text]

51. Id. [Return to Text]

52. Id. [Return to Text]

53. See, e.g., id. [Return to Text]

54. See, e.g., O’Bannon II, 802 F.3d at 1079; In re NCAA, 958 F.3d at 1254. [Return to Text]

55. See, e.g., O’Bannon II, 802 F.3d at 1079; In re NCAA, 958 F.3d at 1254. [Return to Text]

56. In re NCAA, 958 F.3d at 1254. [Return to Text]

57. Id. [Return to Text]

58. See, e.g., Worldwide Basketball & Sport Tours, Inc. v. NCAA, 388 F.3d 955, 961 (6th Cir. 2004). [Return to Text]

59. In re NCAA, 958 F.3d at 1248. [Return to Text]

60. See id. [Return to Text]

61. Id. at 1248–52. [Return to Text]

62. Id. at 1250. [Return to Text]

63. Id. at 1244–45. [Return to Text]

64. Kendall Baker, States Follow California, Introduce Bills to Pay Student-Athletes, Axios (Feb. 28, 2020), https://www.axios.com/student-athlete-compensation-bills-ncaa-3aa94f40-db49-4f21-a83b-b5d42cf75483.html [https://perma.cc/5S6M-TARF]; see, e.g., S.B. 206, 2019 Reg. Sess. (Cal. 2019) (codified at Cal. Educ. Code § 67456 (operative Jan. 1, 2023)). [Return to Text]

65. See Abigail Johnson Hess, Majority of College Students Say Student-Athletes Should Be Paid, Survey Finds, CNBC: Make It (Sept. 11, 2019, 12:53 PM), https://www.cnbc.com/2019/09/11/student-athletes-should-get-paid-college-students-say.html [https://perma.cc/8XRG-Y4D8].  Approximately 80 percent of college students support student-athlete compensation.  Id. [Return to Text]

66. See id. [Return to Text]