Challenging the NCAA Cartel: When Consumer Welfare Equals Worker Exploitation
Open Markets Legal Director, Sandeep Vaheesan, published an op-ed in Harvard Law Review on June 9, 2020, discussing the need to overcome the most recent antitrust suit brought about in NCAA college basketball in the Ninth Circuit court.
The latest antitrust suit brought by college basketball and football players ended (for now) with a partial victory for the athletes. In a unanimous decision last month in Alston v. NCAA, the Ninth Circuit affirmed Judge Claudia Wilken’s finding of liability against the NCAA and upheld her remedy striking down NCAA rules prohibiting player compensation directly tied to education. (The Open Markets Institute, where the author works; Change to Win; the National Employment Law Project; and three professors of economics and law filed an amicus brief in support of the players.) While Alston is an important blow against the NCAA, Judge Wilken’s decision and the appellate affirmance represent a disappointing and indeed troubling outcome that preserves the NCAA’s system of racialized exploitation. On top of denying the players the right to a competitive market for their talents, the decision could hurt other workers subject to unfair practices by and among employers.
As Judge Milan Smith, Jr. wrote in a powerful concurrence, the court, in its antitrust analysis, made a serious error in weighing the real harms to the players from the NCAA’s restraints against their purported benefits to fans. Because Judge Wilken and the Ninth Circuit accepted the NCAA’s argument that tight limits on player compensation stimulate viewer interest, they declined to enjoin the NCAA’s collusive arrangements in their entirety. Through this balancing of player and consumer interests, the court subverted the Sherman Act’s protection of the players and made a policy judgment typically reserved for legislatures.
The NCAA has long enforced a system that limits player compensation and prohibits colleges from competing for players’ services by offering salaries and other benefits. Instead, compensation of players is capped at the total cost of attendance in the form of a scholarship, room and board, and a stipend for living expenses. The NCAA has disciplined and stigmatized players, coaches, and institutions that flout these rules however trivially — rules that maintain an employer cartel composed of Division I colleges and universities.
College football and men’s and women’s basketball generate billions in revenue every year — revenue that is monopolized by certain college constituencies. Basketball and football players, a majority or a plurality of whom are black, devote fifty hours or more per week to their sport. While players at top programs would earn six figures annually if colleges fully competed for their services, a 2013 study found that (before some modest reforms to the NCAA system) more than 80% of players received poverty-level compensation. In contrast, other segments of the college sports enterprise thrive. Consider the overwhelmingly white coaching ranks. For instance, Duke University men’s basketball coach Mike Krzyzewski and Clemson University football coach Dabo Swinney each make around $9 million a year. In light of these realities, historian Taylor Branch described college athletics as having an “unmistakable whiff of the plantation.”
Since a 1984 Supreme Court decision, the NCAA has enjoyed a privileged status under antitrust law. In NCAA v. Board of Regents of the University of Oklahoma, the Court had to decide whether the NCAA violated antitrust rules when it sought to maintain absolute control over televised broadcasts of football games. It had threatened sweeping sanctions against the University of Oklahoma and the University of Georgia, which were part of an association of top football programs poised to sign a separate television contract with NBC. The district court and courts of appeals characterized the NCAA as a cartel and found its effort to control broadcasting of college football to be an illegal price fixing and group boycott scheme.
The Supreme Court, however, declined to summarily condemn the NCAA’s conduct. It reasoned that football requires horizontal restraints among colleges to exist in the first place (for instance rules on the number of players per team, field size, points per touchdown, and the like). The high Court accordingly held that all NCAA restraints should be evaluated under the fact-intensive rule of reason, even those that would ordinarily trigger the per se rule. Under the rule of reason, plaintiffs must show that a challenged restraint has, or is likely to result in, harmful market effects, such as higher prices. For antitrust enforcers, the rule of reason means a slim probability of success.
In 2015, college athletes made a successful incursion against the NCAA cartel at the appellate level. In O’Bannon v. NCAA, players won an antitrust suit against Division I colleges. The Ninth Circuit held that the NCAA prohibition on colleges paying players for using their names, images, and likenesses violated antitrust law. The court of appeals, however, offered a very modest remedy and only struck down NCAA rules that prevented colleges from covering players’ total cost of attendance. Before O’Bannon, the NCAA’s cap was set below the total cost of attendance. Many players had to cover a portion of their costs of attending college and training for and playing their sport.
In Alston, the federal courts had to decide a direct challenge to the entire NCAA system. Current and former football and basketball players alleged that the system is an illegal restraint of trade. In a March 2019 decision, Judge Wilken found that the players had established harm from the NCAA collusion, meeting its burden at the first step of the rule of reason, and shifted the burden to the NCAA to justify its collusion against the players. At this second step, Judge Wilken allowed for cross-market balancing. She permitted the NCAA to present in its defense that its restraints had benefits for other groups, such as viewers of college sports.
While rejecting most of the NCAA’s justifications, she found that consumers do value and watch college sports, in part, because salary caps distinguish these athletics from professional sports. She wrote, “Rules that prevent unlimited payments such as those observed in professional sports leagues, therefore, are procompetitive when compared to having no such restrictions.” (Oddly, Judge Wilken accepted this justification even as she rejected the supporting survey evidence the NCAA had presented.) Having found a legitimate “procompetitive justification” for the NCAA’s restraints on player compensation, Judge Wilken then went on to conclude, at the rule of reason’s “third step,” that the NCAA could have achieved these consumer benefits through less restrictive means. Noting that players already receive compensation related to education without hurting viewer interest, she invalidated the NCAA’s caps on payments related to education and kept the other restraints intact.
The Ninth Circuit last month affirmed Judge Wilken’s decision in its entirety and permitted the NCAA system to remain in place, subject to limited modifications. In a footnote, the court noted that amici supporting the players (including the Open Markets Institute and allies) had argued that cross-market balancing is improper but declined to resolve the issue because the parties had not raised it.
As Judge Smith wrote in concurrence, this cross-market balancing “seems to erode the very protections a Sherman Act plaintiff has the right to enforce [and here] Student-Athletes are quite clearly deprived of the fair value of their services.” The Supreme Court has long held that the Sherman Act protects workers and other sellers just as much as it protects consumers and other purchasers. Despite the ideological and rhetorical shift in antitrust in favor of “consumer welfare” since the 1970s, courts and antitrust enforcers have continued to state that seller protection against restraints of trade is co-equal to consumer protection.
The decisions in Alston validate, in effect, consumer taste for labor exploitation. Judge Smith lamented that the court’s analysis means that the “Student-Athletes are quite clearly deprived of the fair value of their services.” The judiciary permits employer collusion against a substantially black workforce in the name of satisfying the preference of viewers, a preference here that is driven in part by anti-black racism. And in practice, the judges upheld a system that profits a white collegiate administrative and coaching class at the expense of disproportionately black athletes.
Through cross-market balancing, the Alston courts also assumed the right to legislative-like judgments about the NCAA system. Instead of narrowly deciding the validity of the NCAA’s restraints on player compensation, Judge Wilken and the Ninth Circuit evaluated the broader costs and benefits of the NCAA system. Citing Supreme Court guidance against such balancing, Judge Smith wrote, “[C]ourts employing a cross-market analysis must — implicitly or explicitly — make value judgments by determining whether competition in the collateral market [the market for exhibiting and broadcasting team sporting events] is more important than competition in the defined market [the market for obtaining athletes’ services].” He added that he was skeptical whether courts could ever conduct such “policy judgments” in a neutral or objective way. Yet, Alston did exactly this, sacrificing competition among colleges for players’ talents ostensibly to permit the NCAA to distinguish itself from professional sports and sustain viewer demand.
While Alston is a bad decision for players, its implications extend to other workers. To be sure, in some ways, the NCAA is a special case. Most employers in the economy do not have the right to collude on wages. They cannot escape per se condemnation and receive the opportunity to present justifications for such collusion, whether to the affected workers themselves or other groups. Outside of the NCAA, wage-fixing and no-poach conspiracies among employers, in general, are categorically illegal.
Such horizontal agreements, however, are not the only competitive tool employers use against workers. And those tools will be judged under the same rule of reason that the Ninth Circuit just further corrupted. For instance, Uber uses a combination of low base pay and bonuses to drivers, whom it classifies as independent contractors, to encourage them to use only the Uber app to obtain passengers. This effective exclusivity is subject to the rule of reason. Does Alston mean that Uber can point to consumer benefits in defending itself against a potential driver lawsuit over exclusivity? Can greater convenience or lower fares be used to justify limiting the autonomy of purportedly independent contractors? The logic of Alston compels answering yes to both questions.
The federal judiciary denied the players justice by weighing the injuries they sustained from the NCAA’s collusion against this system’s speculative and troubling consumer benefits. While some players will benefit from payments tied to education, the core of the collegiate employer cartel — the ban on directly paying players for their skills — will survive unchanged. In the wake of Alston, antitrust practitioners and scholars cannot assert that the Sherman Act offers full protection to workers and other sellers. Both Judge Wilken and the Ninth Circuit implicitly established that consumer welfare is supreme and that antitrust protection of workers should be qualified by consumer interests. While antitrust is a potentially important tool for advancing worker freedom, its promise is under serious doubt so long as employers can justify harms of trade restraints to workers by claiming offsetting gains to consumers.