Supreme Court Hears Arguments on NCAA Caps on Student-Athlete Compensation

Last month, amidst college basketball’s March Madness tournament, the Supreme Court heard oral arguments on a lower court ruling regarding college athletes’ earnings. That ruling stipulated that colleges can no longer limit non-cash education-related compensation for student-athletes. This refers to tangible items provided on top of grant-in-aid for educational purposes. The High Court should release its decision in the consolidated case Shawne Alston v. NCAA by the end of June.

NCAA Rules

Almost a decade ago, student-athletes starting filing lawsuits claiming they should be compensated for their work. They argued that since they brought in millions of dollars to their respective colleges, they were owed payment. In fact, during the 2016-2017 school year alone, National Collegiate Athletic Association (NCAA) revenue topped $1 billion.

In Alston, the plaintiff challenged an NCAA rule that restricted non-cash compensation to student-athletes. The plaintiff alleged this regulation constitutes price-fixing. Back in 2019, the district court certified three injunctive relief classes of student-athletes. These are Football Bowl Subdivision (FBS) football players, D1 men’s basketball players, and D1 women’s basketball players “who have received or will receive a full grant-in-aid during the pendency of this litigation.”

Sherman Act Violation

Judge Claudia Wilken of California’s Northern District agreed with the players. She ruled that the NCAA regulation on non-cash compensation “unreasonably restrains trade in violation of Section 1 of the Sherman Act.” She found that the “challenged rules constitute horizontal price-fixing agreements enacted and enforced with monopsony power.” Such price-fixing removes price competition in the recruitment of student-athletes in Division I basketball and FBS football.

Judge Wilken perhaps revealed more of the heart of this case when she commented on the “great disparity” between the “extraordinary revenue” that the NCAA garners from these athletes and the modest benefits they receive for their athletic services. “Class members contribute their elite talent and time, they limit their educational options, and they risk their long-term health to create enormous financial value for Defendants,” said Judge Wilken.

Education-Related Compensation Allowed

The district court’s order permanently restrained and enjoined the NCAA “from agreeing to fix or limit compensation or benefits related to education that may be made available from conferences or schools to Division I women’s and men’s basketball and FBS football student-athletes on top of a grant-in-aid.” Judge Wilken’s order also included a list of the education-related benefits that the association can no longer limit.

Wilken said the NCAA had not proven that restricting non-cash, education-related benefits is necessary to preserve consumer demand for the FBS football and D1 basketball amateur product as distinct from the professional sports market. However, Wilken did accept the NCAA justification that “amateurism”—unpaid athletes—drives consumer interest in college sports. As such, her ruling does not apply to NCAA restrictions on cash compensation not tied to education.

Court of Appeals Upholds Decision

The NCAA appealed the ruling to the U.S. Court of Appeals for the Ninth Circuit. The appellate court declined to overturn. They found that the district court properly determined that the NCAA’s rules are unlawful restraints of trade under the Sherman Act. The appellate court went further, adding that “the record supports the factual findings underlying the injunction and that the district court’s antitrust analysis is faithful to our decision in O’Bannon v. NCAA (O’Bannon II), 802 F.3d 1049 (9th Cir. 2015).”

The Last Appeal

The fate of this case is now in the hands of the ultimate legal referee, the U.S. Supreme Court, after it agreed to hear the NCAA’s petition. Attorneys who argue before the Supreme Court know the Court’s decisions take many months of deliberation. But several of the Justices seemed taken with the students’ arguments during the recent oral arguments. Justice Kavanaugh commented that it looks like the schools are “conspiring with competitors to pay no salaries to the workers who are making the schools billions of dollars on the theory that consumers want the schools to pay their workers nothing.” Justice Thomas focused on how coaches’ salaries “have ballooned.” Justice Kagan told the NCAA’s attorney that “[T]hese are competitors all getting together with total market power fixing prices.”

The outcome of this case could dramatically alter the nature of NCAA sports. NCAA supporters also worry this could signal additional lawsuits to come challenging other NCAA compensation restrictions. Be sure to watch for the overtime outcome on this far-reaching case.