Sports in the Courts: The NCAA and the Future of Intercollegiate Revenue Sports

by Paul Haagen

Summer 2019 | Volume 103 Number 2

On February 20, 2019, the Duke men’s basketball team met the team from the University of North Carolina at Cameron Indoor Stadium in Durham, North Carolina. The much-hyped game featured Duke’s heralded freshmen — including the most-talked-about player in college basketball, Zion Williamson — against Carolina’s supremely talented and more experienced team. In the opening moments of the game, Zion Williamson attacked Carolina’s basket. He stepped hard to his left. When he attempted to spin back to his right, his left foot tore through the side of his shoe. He lost his balance and fell, injuring his right

Zion Williamson Scoring a Basket at Duke

Duke’s Zion Williamson in action. Photo by Reagan Lunn/ Duke Athletics.

knee. It was a dramatic moment, not just in the game and for Zion, but also for Nike, the manufacturer of the shoe and the sponsor of both of the teams in the game. Over the ensuing 24 hours, the value of Nike’s stock fell by about two percent.

The incident crystalized what many regard as a basic unfairness of revenue-sport intercollegiate athletics. At the highest levels of competition, football and men’s basketball are run on a commercial basis and generate significant revenues, both for athletic departments as well as the television networks and other commercial entities that support them. Tickets for the game reportedly were selling on the secondary market for thousands of dollars. The two head coaches in the game are respectively the most highly paid employee at Duke University and the most highly paid public official in the state of North Carolina. The athletes themselves, however, are paid no more than their scholarships and certain other allowable expenses — even though each time they take the court, they risk injury and potential harm to their prospects for future opportunities as professional athletes.

It makes little difference to the larger debate that the crisis of Zion’s injury was not a crisis at all. Within days, the value of Nike’s stock had recovered. Zion was not seriously injured. Even if he had been, in all likelihood he still would have been selected first in the 2019 NBA draft.[1] And the fact that Zion perhaps benefited more than anyone else in 2019 from the platform of NCAA basketball also is not relevant to the larger debate. Most men’s basketball and football players in 2019 benefited far less from their collegiate athletic pursuits, and the distortions created by NCAA restrictions that limit the ways in which schools can compete for athlete talent are real enough.

At present, no federal or state law requires that NCAA athletes be paid for playing a sport. In fact, nearly the opposite is true: The U.S. Attorney for the Southern District of New York has prosecuted and secured criminal convictions against a number of individuals for fraud related to schemes to pay NCAA athletes in violation of NCAA rules.

But is the historical acceptance of NCAA regulation of “amateurism” about to change? Its system of restrictions on the payment of athletes is certainly under unprecedented pressure as the money generated by the increasingly intense commercial exploitation of revenue-sport intercollegiate athletics grows. There has been a distinct shift in public attitudes and discourse about the issue.

That shift has begun to be reflected in debate in legislative bodies. Proposed legislation at the state level, in California and North Carolina, as well as the federal level, would forbid some of the current restrictions that limit the compensation of intercollegiate athletes. Recognizing the shift, the NCAA itself has started to respond by loosening some of its rules and forming a committee to consider additional changes regarding name and likeness licensing. More threatening to the NCAA have been the antitrust legal challenges to the entire structure of “amateurism” regulation.

Are the courts about to reshape college sports?

What do the rules say?

The current structure of NCAA Division 1 Athletics regulation is based on “commitments” and “principles” enforced by “by-laws.” The commitment relevant to athlete compensation is a commitment to “amateurism” and the maintenance of a “line of demarcation between student-athletes who participate in the Collegiate Model” and athletes competing in the professional model.[2] Principle 2.9, the Principle of Amateurism, explains that participation in intercollegiate athletics “should be motivated primarily by education and by the physical, mental, and social benefits to be derived.”[3] The rules related to amateurism are then set out in By-Law Article 12.

But Article 12 construes neither the commitment nor the principle to mean that athletes cannot be paid. In fact, as a condition of membership in Division 1, an institution is required to spend a minimum $1.6 million dollars on athlete expenses. The schools at the top of the athletics hierarchy all spend considerably more. Rather, Article 12 simply limits the ways in which athletes can be paid by their institutions and how they are permitted to exploit their own often considerable fame for economic gain.

These amateurism rules were adopted collectively by the entities that compete for athletic talent and are intended to restrict the ways in which those entities can compete for that talent. To the extent that the market for that talent is considered “commerce,” such restrictions constitute horizontal price fixing and potentially violate the antitrust laws. For the first century of the NCAA’s existence, the courts did not treat the market for college athletic talent as “commerce” within the meaning of the antitrust laws, and the NCAA continues to argue that its amateurism rules are exempt from antitrust scrutiny. In light of recent cases, however, it is highly doubtful that this argument is now viable.

The antitrust treatment of sports, however, is different in a critical respect from that of most sectors of the economy. In sports, the product that is being sold is competition, and that competition requires some level of cooperation among the competitors in order to produce the product. As a result, courts have held consistently that even the types of horizontal price fixing that would constitute per se violations of antitrust law in other areas of commerce need to be analyzed under the “Rule of Reason.” If the restrictions on competition are economically pro-competitive and not more restrictive than necessary to achieve the pro-competitive effect, those restrictions do not violate antitrust law. That much is clear. What has created a measure of uncertainty is the application of the Rule of Reason in light of the Supreme Court’s dicta in NCAA v. Board of Regents of University of Oklahoma, advising the lower courts to show deference to the NCAA’s “tradition of amateurism in college sports.”[4]

A different uncertainty attaches to whether federal labor law applies to revenue-sport scholarship athletes. In 2013, a group of Northwestern University scholarship football players began an effort to organize with the goal of bargaining collectively under federal labor laws on the mandatory subjects of wages, hours, and conditions of work. The regional office of the National Labor Relations Board in Chicago found that they were employees within the meaning of the Act and recognized their right to hold a union election. The NLRB then decided that it was not in the interest of federal labor policy to permit these football players to organize under the Act. Critically, it did not decide that they were not employees, and it left for another day the question of whether under different circumstances it might exercise its discretionary authority differently.

Finally, Title IX does not require that any athlete be paid, but it does require that women be given opportunities and support substantially equivalent to those provided to men. There have been several attempts to exclude revenue-producing sports from Title IX, but those have been rejected. As a result, the relevance of Title IX to this debate is that whatever enhanced compensation is awarded to male revenue-sports athletes will need to be awarded to a similar number of female athletes without regard to whether they play sports that produce revenue.

Why not pay athletes?

The strongest legal argument available to the NCAA against allowing its athletes to be paid is that the nonpayment of athletes is essential to amateurism and that, by preserving this tradition, the NCAA creates a market and a set of opportunities that otherwise would not exist.[5] The effect of the restrictions is thus to increase consumer choice and is pro — not anti — competitive. In evaluating this argument, the Ninth Circuit has counseled deference to the tradition of amateurism, citing the Board of Regents dicta noted above.[6] How that deference will operate is likely to prove critical in the future.

The first part of the defense, that the restrictions are necessary to maintain a market that otherwise would not exist, is simply a Rule of Reason analysis. The NCAA also has articulated both supply and demand arguments. The supply argument is that if colleges and universities had to pay athletes in revenue-producing sports — either within a restrictive framework like the one currently in place, or in accordance with the dictates of a competitive market — some or all of those institutions would withdraw from the competition altogether and the market would contract or cease to exist. Is this plausible? Many universities have built their public profiles and identities around one or more of their revenue-sport teams. The decision to break with that identity might prove harder than to break with the tradition of not paying athletes. On the other hand, many of the less commercially successful athletic programs already struggle to balance and even justify their budgets. Adding another financial burden might be a bridge too far.

The demand argument is that restraints on pay of intercollegiate athletes define the line of demarcation between amateur and professional sports. If that line is breached, according to the argument, college sports would cease to be viewed by consumers as a separate product and come to be seen merely as inferior professional sports, unable to compete effectively for consumer interest and dollars. The court in Alston v. NCAA (discussed further below) accepted this argument.

The Ninth Circuit, in O’Bannon v. NCAA (also discussed further below), has made it clear that the NCAA must prove its claim that maintaining this separate amateur market is procompetitive.[7] That is not easy to do. Thus far, courts have accepted evidence based on surveys of consumer attitudes and preferences that attempt to establish whether intercollegiate and professional sports are, in fact, separate markets with significant inelasticity of demand between them, and if so, whether paying athletes is the demarcation between the markets. Fans are asked questions about how they would react if college athletes were paid — that is, how they would respond if the world were to be different from any world they have known or that has existed openly.[8]

The amateurism argument has largely been successful to date, and courts have shown great reluctance to interfere with intercollegiate sports in a way that could lead to major court-ordered changes. That said, the continued effectiveness of the amateurism argument likely depends on the deference afforded the tradition of amateurism. If, as it seems, the NCAA is losing the public relations and political war on this matter, the courts may also begin to demonstrate increasingly searching levels of skepticism, with potentially major effects on the organization of high-level intercollegiate sports.

What does it mean to be an “amateur?”

Two words entered English, one from French the other from Italian, at the beginning of the 18th century. The former, amateur, and the latter, dilettante, meant essentially the same thing: a person who engaged in an activity out of a love for or delight in the thing itself, and not for some instrumental, ulterior purpose. Almost immediately, the latter term took on a negative connotation of undisciplined dabbling. In the 21st century, amateur is taking on that same connotation. No athlete is now praised for taking an “amateur” approach to their craft. What is valued is a “professional” approach to training and to play.

This linguistic ambivalence about the concept of amateurism might not matter that much were it not for a growing unease about its purposes. When Harvard and Yale met at Lake Winnipesaukee, New Hampshire, in 1852 to race eight-oared shells in what is generally regarded as the first intercollegiate athletic contest in United States history, they were imitating and borrowing from an older and wildly popular British event, the Oxford-Cambridge boat race. They took from the British not only the form of the competition, but also the celebration of social elitism, or the idea that sport should be conducted by gentlemen amateurs who could afford to play without being paid. What they saw as the virtue of the ideal is now regarded as a particular vice that fits poorly in a society that repeatedly declares its allegiance to inclusivity.

But under the pressure of competition and the humiliation of repeated football losses to Yale, in 1905, Harvard (and then other universities) abandoned the ideal of the amateur coach. Harvard enticed star coach Bill Reid to return to Cambridge at “a princely salary” that exceeded the pay of any other member of the faculty and approached that of legendary President Charles Elliot.[9] At present, in 40 of the 50 American states, the highest paid public official in the state is either a men’s basketball or football coach at a public state university. Whatever hold the tradition of amateurism has, it has weakened and, at least at the edges, frayed.

To the extent that amateurism remains an ideal for other reasons, it is increasingly confined to American intercollegiate sports. It used to be a central tenet of the Olympic Movement, but the Olympics have now all but abandoned it.[10]  Even within American intercollegiate sports, the commitment to amateurism is now confined to determining eligibility to compete.

None of this is to suggest that traditions riddled with compromise and inconsistency cannot have considerable staying power. But the compromises are getting noticed unfavorably more frequently. The apparently limited and self-serving quality of the commitment to amateurism is at the heart of Sen. Chris Murphy’s Reports on The College Sports Industrial Complex. He has argued that denying pay to intercollegiate revenue-sport athletes is a civil rights issue.[11]

Unless the NCAA succeeds in better explaining itself, or in otherwise changing the narrative about the place of commercialization in amateur sports, whatever the deference to tradition that has been shown by the courts in the past is likely to encounter increasing skepticism in the future. The NCAA has certainly tried to explain its commitment to amateurism.  It has sought to emphasize that the overwhelming majority of intercollegiate athletes participate in sports that neither generate net revenue nor create post-graduation professional playing opportunities. The opportunities for these athletes, who work just as hard at their sports as the revenue-sport athletes, are, the NCAA insists, created in part by funds generated by the few in the revenue-producing sports. This Robin Hood-like cross subsidization is common in American higher education. Wealthier students pay more in effective tuition rates and subsidize the rates charged to less-wealthy students. Most universities “tax” law schools and business schools, which are more successful at generating revenues, to subsidize the other parts of the institution that generate less revenue.

What makes this argument more difficult in the case of intercollegiate athletics is that the re-distribution is enabled, and arguably required, by cartel rules. In addition, more of the surplus generated by revenue-producing sports is distributed to coaches and administrative personnel than to nonrevenue-sport athletes. Finally, to the degree that there is a re-distribution of resources among intercollegiate athletes, the demographics of college sports mean that funds effectively shift from disproportionately minority male athletes to disproportionately white and female athletes.

The athletes arguably harmed by the cartel restrictions on compensation are, moreover, highly visible. The effective commercialization of revenueproducing intercollegiate sports means that the athletes, and the distorting effects of amateurism rules, are front and center in the public consciousness. The games that generate the largest audiences give an unrivaled platform to critics of the current structure whose world view and professional self-interests are tied closely to the concerns of those revenueproducing sports.

What is the future of the NCAA’s amateurism model?  

Judge Claudia Wilken’s decisions in the O’Bannon and Alston cases[12] — along with Judge Jay Bybee’s appellate opinion in O’Bannon, affirming in part and vacating in part her decision[13] and Chief Judge Sidney Thomas’s opinion in O’Bannon, concurring in part with and dissenting in part from Judge Bybee’s majority[14] — have rightly received a lot of attention from the media and from commentators. But what they mean for the future of the NCAA’s amateurism model is not clear.

O’Bannon was a sprawling case in which plaintiffs challenged both the restrictions on the NCAA’s limits on “in game” licensing of players’ names and likenesses and its restrictions on the size of permissible individual scholarships. Alston was a more focused case challenging the interlocking NCAA rules limiting compensation that Division I Football Bowl Subdivision and Division I men’s and women’s basketball players may receive in exchange for their services. O’Bannon critically was the first case to hold that an aspect of the NCAA’s amateurism rules violated the antitrust laws.[15] Alston reaffirmed the antitrust analysis announced in O’Bannon and enjoined the NCAA from (1) limiting athletics-related scholarships to less than the full cost of attendance and (2) limiting education-related benefits on top of the grant-in-aid.

Initially, the Alston decision was hailed as a major, transformative victory for the plaintiffs. The court, building on O’Bannon, held that the NCAA’s amateurism rules were subject to antitrust scrutiny under the Rule of Reason standard, and that the Rule of Reason defense had to be proven, not assumed. Closer scrutiny of the details of the relief granted, however, raised questions about who had actually won the case. Judge Wilken determined that there was a separate market for amateur intercollegiate sports and that NCAA limits on compensation unrelated to education expenses were relevant to defining that market. In addition, she explicitly acknowledged that individual conferences could limit education-related benefits, even if the NCAA itself could not, and that the NCAA could then assist the conferences in enforcing their more-restrictive rules. Finally, she stayed the enforcement of her injunction for 90 days. Looking at the relief granted, these cases look more like victories for the NCAA.

The critical question moving forward is if and when the next shoe will drop. The Rule of Reason analysis is a factbased inquiry. If the NCAA is unable to demonstrate in the future that its highly commercialized revenue sports are either not regarded as different from professional sports, or, if they are regarded as a separate market — that the line of demarcation is based on something other than athlete compensation — then the defense of the amateurism rules will further erode or even collapse. Judge Bybee’s O’Bannon majority opinion explained that the NCAA should be given considerable latitude in constructing its amateurism rules,[16] but latitude will protect the NCAA only so far, and relying on Rule of Reason defenses is a high-consequence gamble.

If paying is the answer, how would it work?    

If the NCAA does allow its athletes to both be paid and retain their eligibility, change is likely to come gradually. Athletes would be paid directly in ways that are not based on markets for individual talent and that minimize the likelihood of athletes being treated as employees. The current structure already permits some, if limited, flexibility. Under the rules, some forms of athletic aid are permissive. Institutions can provide it or decide not to do so. The types of aid that might be allowed include enhanced payments for medical coverage or post-playing education, training, internships, other ways of enhancing job readiness or transitions, or subsidized loss-of-earnings insurance. All of that could be accommodated within the structure of the current rules and without doing violence to the concept of amateurism as currently defined. Individual conferences could, moreover, be given authority to set caps. By setting the rules related to permissive payments at the conference level, limits could be more narrowly tailored to the ability of conference members to pay, and no one conference would be able to exercise market power. These changes would cost whatever they would cost.

The NCAA could also permit athletes to license their “nongame” names and likenesses, and allow them to be paid in accordance with whatever regulations would be deemed appropriate. It has recently announced a committee to consider a framework for such a change. In a white paper prepared for the Knight Commission on Intercollegiate Athletics in May 2016, Professor Gabe Feldman of Tulane Law School argued that such a loosening of the amateurism rules might be even more consistent with the concept of amateurism than athletic scholarships are.[17] Such an approach, he suggested, would make the Rule of Reason antitrust arguments more persuasive by more narrowly tailoring the amateurism limits on compensation. But such changes could also call into question the line of demarcation between amateur and professional sports. Judge Bybee in O’Bannon questioned whether paying intercollegiate athletes for their names and likenesses, “untethered to educational expenses,” would cross a line and leave no stopping point.[18]

If the issue is not what the NCAA would “allow,” but rather what it might be forced to do by the courts in antitrust decisions, change is likely to look very different. If the courts reject the NCAA’s Rule of Reason defense of its amateurism rules because they find that the public no longer cares about whether players are paid or not, then decisions about whether, how much, and on what terms players would be paid could devolve to individual institutions. The market would then decide what the services of the athlete are worth. As the courts have recognized, nothing in the history of intercollegiate athletics gives much hope that individual institutions will successfully resist competitive pressures.

There are at least two potential structural responses if the Rule of Reason defense is lost. The less radical would be to continue to devolve regulatory power from the NCAA to the individual conferences in the hope that the courts would hold that the conferences do not have sufficient market power to be capable of violating the antitrust laws. The more radical would be to borrow a page from the professional sports leagues and rely on collective bargaining and the nonstatutory labor exemption to antitrust liability. To do so would require a fundamental break with the past, but it might permit institutions to better align the reality of intercollegiate athletics with its ideology.

Because federal labor law applies only to private employers, public institutions would have to privatize their revenue-sports teams in the way they contract out services previously provided in-house. They might, for example, license their colors and marks to an outside party, which would then contract with the institution to run a revenue-sports program on whatever terms the institution could negotiate and the NCAA would permit — including that the players needed to be full-time students at the institution. The outside parties running these teams could then form multiemployer bargaining units to negotiate the wages, hours, and working conditions with a union for the athletes. This would admittedly constitute a brave new world for intercollegiate athletics, but it might better accommodate the realities of commercialized revenue-sports with the needs and capacities of American higher education. It could complete the transformation of what has been called the amateur model into what would be an intercollegiate model.

What does it all mean for the fans?

After the Penn Quakers eliminated North Carolina from the NCAA men’s basketball tournament in 1979, Penn’s student manager observed: “They were on TV so much that I thought they were a TV series.”[19] Forty years ago, it was a funny line. Today, it makes little sense to March Madness viewers. Fans now take for granted that the top teams are on television all of the time. The “tradition” of college sports, and especially of revenue-producing college sports, is not static. In the past two decades, fans have adjusted and accepted significant changes in the malleable “tradition” of intercollegiate sports. Some conferences have expanded to permit an additional conference championship football game. Schools have abandoned their traditional rivals to become the rivals of schools they previously had little or nothing to do with. Athletes in revenue sports are now less likely to stay in one school for the entire four years of their eligibility. Some leave early for the pros and others take advantage of new and more facilitative transfer rules.

Jerry Seinfeld famously quipped that sports fans cheer for “clothes.” And as to “clothes,” apparel manufacturers have succeeded in getting institutions to accept different colors and designs for uniforms, and fans and viewers seem to have accepted the changes. It seems entirely plausible that fans will take the payment of players in stride and adjust to the new normal. If the changes are gradual, and take the form of, for example, enhanced scholarships or delayed payments for name and likeness licenses, they may not even be noticed. After all, fans of the Olympic Games did not notice similar changes decades ago.

If the changes are more drastic or rapid, intercollegiate sports may further fragment. Perhaps those institutions that are most committed to commercializing would form some sort of super league. What is certain, however, is that paying college athletes on the basis of their market or scarcity value will introduce an element of instability into the system and further intensify commercial pressures on younger and younger athletes. It is equally certain that it will be the courts that will play the pivotal role in deciding if and when change will come.

Footnotes: 
[1] The 2017 NBA CBA (Exhibit B-2) sets out the collectively bargained Rookie Salary Scale. A player selected number one in the 2019 Rookie Draft is guaranteed a three-year contract worth at least 80% and not more than 120% of the scheduled amount ($23,121,900). No one picked first in the NBA Rookie Draft has ever signed for less than 120% of the scheduled amount. The three-year guaranteed amount is the minimum that a player selected first in the Rookie Draft will be paid by his NBA team. Assuming that the player does not suffer a career-ending injury, or render himself ineligible to play, he could expect to be paid many multiples of the scheduled amount over the course of his career. In addition, high-profile NBA players have significant opportunities to market their name and likeness.
[2] Nat’l Collegiate Athletic Ass’n, 2018-19 NCAA Division I Manual.
[3] Id. art. 2.9.
[4] 468 U.S. 85, 120 (1984).
[5] See generally In re NCAA Athletic Grant-in-Aid Cap Antitrust Litig. [Alston], No. 14-md-02541, 2019 WL 1747780, at *25–41 (N.D. Cal. Mar. 8, 2019).
[6] O’Bannon v. NCAA, 802 F.3d 1049, 1073–74 (9th Cir. 2015) (“The NCAA’s second point has more force—the district court probably underestimated the NCAA’s commitment to amateurism.” (citing Board of Regents, 468 U.S. at 120)).
[7] Id. at 1063–64.
[8] On the difficulty of answering this kind of counterfactual proposition, see the testimony of the NCAA’s expert Neal Pinson, which the Ninth Circuit cited in O’Bannon. See id. at 1078.
[9] Princely Salary to Coach. Harvard Will Give “Bill” Reid $3,500 a Year for Football, N.Y. Times (Feb. 24, 1905).
[10] But see O’Bannon, 802 F.3d at 1077 (rejecting the analogy to the Olympics because “[t]he Olympics have not been nearly as transformed by the introduction of professionalism as college sports would be”).
[11] See generally Chris Murphy, Madness, Inc.: How Everyone Is Getting Rich off College Sports – Except the Players (2019).
[12] Alston, 2019 WL 1747780; O’Bannon v. NCAA, 7 F. Supp. 3d 955 (N.D. Cal. 2014).
[13] O’Bannon, 802 F.3d at 1052–79 (majority op.).
[14] Id. at 1079–84 (Thomas, J., concurring in part and dissenting in part).
[15] See id. at 1053 (majority op.).
[16] Id. at 1074 (“[T]he Supreme Court has admonished that we must generally afford the NCAA ‘ample latitude’ to superintend college athletics.” (quoting Board of Regents, 468 U.S. at 120)).
[17] See Professor Gabe Feldman, Associate Provost for NCAA Compliance, White Paper: The NCAA and “Non-Game Related” Student-Athlete Name, Image and Likeness Restrictions (May 2016).
[18] O’Bannon, 802 F.3d at 1078.
[19] Eddie Matz, The Ivy’s Last Stand: Penn’s 1979 Final Four Run Marked End of an Era, ESPN (Apr. 2, 2019).

About Paul Haagen

Paul Haagen is a professor of law and co-director of the Center for Sports Law and Policy at the Duke University School of Law. He has been a consultant to professional sports teams, national sports federations, national Olympic Committees, universities, and professional, international, and college athletes and college coaches. Before joining the Duke Law faculty, he clerked for the Hon. Arlin M. Adams, United States Court of Appeals for the Third Circuit, and practiced law in Philadelphia.