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Old 05-23-2020, 02:17 PM
mhendo is online now
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"Unlawful restraints of trade": Ninth Circuit rules against NCAA


I know that there are a bunch of college sports fans on this message board, and as there's not much actual sport to discuss, I thought people might be interested in the most recent court ruling on the NCAA. I realize that this OP is TLDR, but I wanted to put enough information in the post that people could get a sense of the case without doing extensive searches or reading the whole opinion.

Last Monday, May 18, the Ninth Circuit Court of Appeals released its ruling in Alston v. NCAA, in which it upheld a District Court judge's ruling that the NCAA's restrictions on education-related benefits violated anti-trust laws.

Ninth Circuit Court of Appeals Opinion (PDF)
Ninth Circuit Court of Appeals oral arguments video
Original District Court Findings of Fact and Conclusions of Law (PDF) document, and District Court Permanent Injunction (PDF).

This was and is a fascinating case, and it comes in the wake of the 2014 O'Bannon decision, in which the same District Court judge, Claudia Wilken, found that the NCAA's rules were an unreasonable restraint on trade. In that case, the Ninth Circuit affirmed some parts of the District Court ruling, and reversed other parts. The overall result of the O'Bannon case was an expansion of the compensation that universities could offer to athletes, allowing scholarships up to the full Cost of Attendance (COA) at the university. Judge Wilken, in O'Bannon, also ruled for "name, image, and likeness" (NIL) payments of up to $5,000 per athlete per year, but this part of the ruling was reversed by the Court of Appeals. Both the NCAA and the plaintiffs filed Writs of Certiorari with the Supreme Court, the NCAA hoping for a reversal, and the plaintiffs hoping for a more substantial remedy, but the Supreme Court refused to hear the case, leaving the Circuit Court's ruling in place. Also, before the O'Bannon decision came down, the NCAA, hoping to head off criticism and maybe get out in front of the ruling, allowed the five "power conferences" to offer bigger scholarship packages.

The end result of all this was a victory in principle for the plaintiffs, but a set of decisions that really didn't change very much about how big-time college sports operated. It certainly did very little to curb the anti-competitive behavior of the NCAA.

This current case, Alston et al., v. NCAA, was another effort to curb the NCAA's restrictive rules and expand the possibilities of various types of compensation for student-athletes. Again, this ruling, made by Judge Wilken in the District Court last year, and affirmed by the Court of Appeals this week, constituted a limited victory for the plaintiffs. The ruling says that the NCAA can't stop universities and colleges from offering "compensation and benefits related to education," even above the current scholarships and COA benefits. From the Permanent Injunction, linked above:
Quote:
The compensation and benefits related to education provided
on top of a grant-in-aid that the NCAA may not agree to fix
or limit pursuant to paragraph 1 of this Order are the
following: computers, science equipment, musical instruments
and other tangible items not included in the cost of
attendance calculation but nonetheless related to the pursuit
of academic studies; post-eligibility scholarships to
complete undergraduate or graduate degrees at any school;
scholarships to attend vocational school; tutoring; expenses
related to studying abroad that are not included in the cost
of attendance calculation; and paid post-eligibility
internships.
The NCAA is also allowed to define what constitutes an education-related benefit. The injunction also applies only to the NCAA, and explicitly allows the individual conferences and individual schools to set limits on these types of benefits:
Quote:
Notwithstanding the foregoing paragraphs, any NCAA member
conference may, individually, fix or limit compensation or
benefits related to education that may be made available from
that conference or its member schools to Division I women's
and men's basketball and FBS football student-athletes on top
of a grant-in-aid. No limit set under this paragraph shall
be set pursuant to an agreement with any other conference.
So, each conference can make decisions about education-related compensation, as long they they don't collude in making their determinations. Color me cynical, but there's a lot of latitude for abuse there.

The ruling makes no provision requiring cash payments, or preventing the NCAA from continuing the prohibition on cash payments. The Findings of Fact and Conclusions of Law (linked above) mention on numerous occasions that "unlimited cash payments" would most likely reduce the competitive nature of college sports by eliminating the distinction between amateur and professional sports. So, players still won't get paid, but they might at least end up with larger overall compensation packages for expenses related to their education.

In any discussion, legal or otherwise, about the NCAA, one of the things I find most hilarious is the straight face with which the organization makes its argument for "amateurism." Even leaving aside the fact of billion-dollar television deals and coaches making seven-figure salaries, the idea of amateurism as a valid defense of violating a law—any law, whether related to competition or anything else—strikes me as ridiculous. Should I be allowed to start a business and not pay my workers, or pay them in some sort of non-monetary way, based on the principle that my potential customer base values the principle of amateurism? But even leaving that aside, the NCAA has never managed to actually defend the principle of amateurism in anything but self-interested ways.

When this board discussed the O'Bannon case back in 2014, Doper Red Wiggler pointed out, correctly, that a central defense made by the NCAA of its anti-competitive practices was that ending amateurism "would damage and possibly destroy fan interest in college sports." As Red Wiggler noted at the time, the only real proof that the NCAA offered to support this position came from self-interested parties like college presidents, athletic directors, and other people who benefited from the status quo ante.

Not much changed in the Alston case. This time, the NCAA did try to offer "expert" testimony that paying players would result in a loss of fans, but the expert continued to rely largely on the same type of self-interested people, and the court found his argument completely unpersuasive:
Quote:
On the question of consumer demand, the district court
found Student-Athletes’ evidence regarding the effect (or lack
thereof) of above-COA compensation on demand more
compelling than the NCAA’s. For instance, in the battle of
economic experts, the district court found the NCAA’s only
demand expert, Dr. Kenneth Elzinga, unreliable because he
failed to study “standard measures of consumer demand, such
as revenues, ticket sales, or ratings,” but instead relied on
interviews with NCAA affiliates introduced to him by
defense counsel. Id. at 1075. The district court further found
his analysis irrelevant as he refused to study consumer
response to historical changes in compensation levels based
on the false premise that the NCAA’s amateurism rules have
not materially changed over time.

pp. 22-23 of the Opinion
The court then noted that it found the student-athletes' witness much more credible because his analysis was "based on two natural experiments and, in some respects corroborated by defense witnesses." Similarly with witnesses related to surveys:
Quote:
The district court also found Student-Athletes’ survey
expert, Dr. Hal Poret, considerably more persuasive than the
NCAA’s, Dr. Bruce Isaacson. Id. at 1078–80, 1100–01.
Dr. Isaacson asked respondents why they watch college
sports and listed “amateurs and/or not paid” as one possible
reason, but failed to indicate that “amateurs” means “not
paid” or to otherwise define “amateurs,” thus “render[ing] the
responses hopelessly ambiguous.” Id. at 1078. Moreover, he
measured only consumer preference and conceded that he did
not attempt to study behavior. Id. at 1079. By contrast,
Dr. Poret tested behavior and found that consumers would
continue to view or attend college athletics (at the same rate)
even if eight types of compensation that the NCAA currently
prohibits or limits were individually implemented. Id.
at 1079–80. The district court credited this conclusion.

pp. 23-24
Not a stellar performance by the NCAA's key expert witnesses.

For me, perhaps the most interesting part of this whole case was not Judge Wilken's decision, or the Ninth Circuit opinion upholding that decision; it was the concurrence to the opinion written by Circuit Judge Smith, which begins on page 57 of the Ninth Circuit Court of Appeals ruling, linked above. A concurrence, for those unfamiliar with appeals court lingo, basically means that he agrees with the majority's overall decision, but disagrees with some of the reasoning behind it.

Judge Smith basically makes clear that he would like the ruling against the NCAA to go much further than it did, and that he feels constrained by the Ninth Circuit's previous decision in O'Bannon. In particular, he levels criticism at the way that the court has applied a legal doctrine called the Rule of Reason, which is central to court cases related to anti-trust and competition.

In anti-trust actions, some types of behavior are per se illegal. One example is price fixing. If it's proved in court that companies colluded with one another to fix prices, that's a violation of the Sherman Act. But in many cases, including this one, determining the violation and possible remedies rests on a substantive analysis of the behavior and its consequences for competition, as well as the possible remedies. Basically, the Rule of Reason has four steps:

1. The plaintiff [in this case, the student-athletes] has the burden of demonstrating that a certain rule or behavior is anti-competitive.
2. If the plaintiff can do this, the defendant [in this case, the NCAA] then has to try and demonstrate that there is a legitimate pro-competitive justification for the behavior.
3. If the defendant does this, the plaintiff then has to show that the type of restraint on trade isn't reasonably necessary to promote competition, or that the pro-competitive objectives of the defendant could be met through less restrictive means.
4. The court then tries to balance the pro- and anti-competitive effects in reaching a ruling.
The plaintiffs and defendants in this case both agreed that the NCAA's behavior was anti-competitive, so they then shifted to Step 2 in the Rule of Reason, where defendants had to show a pro-competitive justification. The problem in this case, according to Smith, is that the NCAA was allowed by the court to shift the "defined market" under discussion in a way that unfairly disadvantages the plaintiffs.

The plaintiffs, the student-athletes, brought their case by arguing that the NCAA's policies restricted trade in the market for the services of student-athletes at colleges and universities. But in Step 2, the defendants didn't use that market as their point of justification. Instead, they pointed to the effect on the broader consumer market for college sports. Smith believes that this type of "cross market" analysis is wrong. He believes that the NCAA should have been required to demonstrate pro-competitive effects NOT in the consumer market for college sports, but in the market among colleges for the services of student-athletes. That would have been much harder for them to do. Smith notes that other courts have "rejected procompetitive justifications outside of the defined market," (p. 63) citing a case from 1978 against the NFL draft. He believes that the Rule of Reason analysis should stick to a single market, and that "accepting procompetitive effects in a collateral market" (p. 64) undermines the aims of the Sherman Act.

Summing up his disagreement, he notes that "the court found that"
Quote:
limiting Student-Athletes’ pay in the market for their services
was justified because that restraint drove demand for the
distinct product of college sports in the consumer market for
sports entertainment. The court did not require that the
NCAA prove that this impact on consumer demand had a
corollary procompetitive impact on the market for Student
Athletes’ services, that it “increase[d] output” or “‘widen[ed]’
the choices ‘available to athletes.’” O’Bannon II, 802 F.3d
at 1072 (quoting Board of Regents, 468 U.S. at 102). The
court did not require that the NCAA prove its compensation
rules, within the defined market, “increase competition in the
economic sense of encouraging others to enter the market to
offer the product at lower cost.” Smith, 593 F.2d at 1186. It
was enough for the NCAA to meet its Step Two burden that
it could show (however feebly) a procompetitive effect in a
collateral market.

Although the district court correctly applied our
precedents, the result of this analysis seems to erode the very
protections a Sherman Act plaintiff has the right to enforce.
Here, Student-Athletes are quite clearly deprived of the fair
value of their services. Alston, 375 F. Supp. 3d at 1068. As
the district court found, while the NCAA and its conferences
generate billions in revenue from college sports, they “have
monopsonypower to restrain student-athlete compensation in
any way and at any time they wish, without any meaningful
risk of diminishing their market dominance.” Id. at 1063,
1070. Under the Rule of Reason analysis we affirm today, so
long as the NCAA cites consumer demand for college sports,
we allow it to artificially suppress competition for collegiate
athletes’ services by limiting their compensation. Instead of
requiring the NCAA to explain how those limits promote
schools’ competition for athletes, we leave Student-Athletes
with little recourse under the antitrust laws. Student-Athletes
are thus denied the freedom to compete and, in turn, “of
compensation they would receive in the absence of the
restraints.”

pp. 65-66
If Smith had his way, this case might have been even more of a game-changer in college sports. As it is, it's fairly incremental, although still an important decision.
  #2  
Old 05-23-2020, 04:35 PM
glowacks is offline
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The whole idea that people will watch less-talented amateur athletes over more-talented professionals is absurd. The reason that people enjoy college sports is, from what I can tell, identification with the college that the team represents, in the same way as people identify with a certain professional sports team. College-skill-level sporting competitions among professionals aren't less popular because people would prefer the athletes are unpaid; the fans simply have no attachment to the teams.
  #3  
Old 05-24-2020, 12:49 AM
Odesio is offline
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Quote:
Originally Posted by glowacks View Post
The whole idea that people will watch less-talented amateur athletes over more-talented professionals is absurd. The reason that people enjoy college sports is, from what I can tell, identification with the college that the team represents, in the same way as people identify with a certain professional sports team. College-skill-level sporting competitions among professionals aren't less popular because people would prefer the athletes are unpaid; the fans simply have no attachment to the teams.
Roughly 22% of Arkansas have graduated from college with a bachelor's degree or higher. I can promise you that the Arkansas Razorbacks are extremely popular here despite so few of us actually having gone to the University of Arkansas. And a few times every yearr, somebody who doesn't know me very well will try to strike up a conversation about the Razorback game (basketball or football for the most part). And this pretty much echoes my experience in Texas as well. There are people who never set foot in Austin or College Station who absolutely love watching the Aggies play against UT.

I was never interested in college sports and I wouldn't doubt if it wasn't as popular as the NFL. But, man, college ball is still very popular and generates a lot of revenue. In other words, there's no question there's an audience for it.
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Last edited by Odesio; 05-24-2020 at 12:50 AM.
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