NCAA Falling Foul of Antitrust Laws

The National Collegiate Athletic Association, or NCAA, has been the subject of criticism recently, regarding its stance toward compensation for the athletes.

The organization imposes several rules on the athletes that effectively bar them from receiving compensation of any kind, other than scholarships and the cost of attending the school. While these rules would ordinarily constitute “open and shut” violations of antitrust laws, historically, the NCAA has been allowed to continue to operate in this fashion on the grounds that it provides a unique opportunity for amateur athletes to receive scholastic degrees.

Antitrust LawsA recent ruling may have reversed this trend, but in order to fully appreciate the results of this case, it is important to understand antitrust laws.

Antitrust and free market competition

Antitrust laws have been around in some form for about 124 years in the United States. The Sherman Act was passed in 1890 as a “comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.”

This act outlaws monopolies, conspiracy to monopolize and contracts, combinations or conspiracy to restrain trade. The Supreme Court has since ruled that not every restraint of trade is illegal under the Sherman Act, but that only those that are deemed to be “unreasonable.” Restraints of trade of this nature include agreements to fix prices, rig bids or divide markets.

If, for example, two large businesses in the same sector agreed to not operate in the same space, they might then be found to be in violation of the Sherman Act. The reason for this law is that these two completely fictional companies would have no strong competitors, and would therefore have no motivation to improve their level of service, decrease their rates or provide any semblance of customer service.

Two more acts have been added to the list of antitrust laws since then – the Federal Trade Commission Act, which established the FTC and rolled Sherman Act violations into the umbrella of that regulatory body, and the Clayton Act. Both of these laws seek to address anti-competitive practices that are not easily categorized under the Sherman Act.

The Clayton Act bans interlocking directorates and mergers that have the effect of substantially reducing competition or the creation of an effective monopoly, for example. Therefore, if the above two fictional companies were to attempt to merge with each other, the merger could be blocked under the Clayton Act.

The NCAA

Coming back to what we’re really talking about – the NCAA – we see that there is reason for the controversy surrounding Judge Claudia Wilken’s decision to rule that the NCAA can’t stop players from selling the rights to their names, images and likenesses.

On one hand, this decision has the effect of further blurring the line between student-athlete and professional athlete, a line that the NCAA has been extremely keen to uphold. By allowing further engagement into the world of professional sports, this decision may further take away from the already limited time that these athletes have to spend on their studies.

On the other, it appears to many that the NCAA is using the idea of “student-athlete,” as opposed to “athlete-student,” to enforce anti-competitive practices that are of direct benefit to the organization. The NCAA regularly does sell the rights to the names, images and likenesses of past and present student athletes, then declines to share the proceeds with those athletes.

With this latter fact in mind, it seems to me that Wilken’s decision in this case is a relatively straightforward enforcement of antitrust laws. If the NCAA’s motives appeared to be more pure, in terms of simply maintaining a student/professional divide and keeping costs from spiraling out of control for university athletics programs, that would be one thing – to profit off of antitrust exceptions is quite another.

The NCAA has had a tumultuous year facing many lawsuits regarding the treatment of students. Find out more about the legal aspects of this relationship from my previous posts:

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Anthony R. Caruso is a business transactional attorney in New York and New Jersey with experience in structuring, negotiation and completion of legal deals involving business, entrepreneurs, athletes and performers.

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