Shearman & Sterling LLP | Antitrust Blog | NCAA Athletes’ Case Goes To Highest Court In The Land:  The Supreme Court Hears Argument On Sherman Act Challenge To NCAA Eligibility Rules On Compensation For Student-Athletes<br >  
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  • NCAA Athletes’ Case Goes To Highest Court In The Land:  The Supreme Court Hears Argument On Sherman Act Challenge To NCAA Eligibility Rules On Compensation For Student-Athletes

    On March 31, 2021, the United States Supreme Court heard oral argument in the consolidated cases National Collegiate Athletic Associate v. Alston (No. 20-520) and American Athletic Conference v. Alston (No. 20-512).  These cases were previously covered as part of our preview of the current Supreme Court term.  Plaintiffs below – NCAA student-athletes – challenged the NCAA’s limits on education-related benefits to student athletes as unreasonable restraints on competition for the student-athletes’ services that violated Section One of the Sherman Act.  After a lengthy trial, the district court agreed and entered an injunction in favor of plaintiffs.  The Ninth Circuit affirmed, finding that the district court had properly applied the rule of reason to the challenged rules, that the rules had significant anticompetitive effects, and that plaintiffs had established that less restrictive alternatives to the existing rules were viable in that they were “virtually as effective” in achieving the procompetitive purposes of the joint venture.  The case-specific issue presented to the Supreme Court is whether the Ninth Circuit erred in affirming the district court’s judgment that the NCAA eligibility rules regarding compensation of student-athletes violated the Sherman Act.  But the case may have broader implications in how courts analyze a joint venture’s restraints on competition under the rule of reason, including how courts should evaluate claims that a defendant joint venture could have or should have used less restrictive means to accomplish its procompetitive goal.

    While it is always difficult to attempt to predict an outcome from an oral argument, our observations and high-level takeaways are as follows:
    • Based on the NCAA’s monopsony power in the market for student athletes and striking contrast between the billions of dollars in revenues and the tight restrictions on competition for athletes, most Justices appeared to be reluctant to reverse the Ninth Circuit in a way that would simply bless the NCAA rules and create a de facto antitrust exemption for restraints on competition for student-athletes.  For example, Justice Thomas asked why coaches’ salaries were not restricted, Justice Kagan asked why this is not price-fixing, and Justice Kavanaugh commented that “antitrust law should not be a cover for exploitation.”  Nonetheless, some of the same Justices went on to express concerns about the practical issues presented by the district court’s approach.
    • The Justices did not seem convinced that the lack of education-related compensation for student-athletes is a defining characteristic of the NCAA’s joint venture necessary to accomplish the procompetitive justification of the joint venture or to maintain consumer demand for the products, citing the extensive trial record, which included a survey indicating that consumers’ interest in NCAA competition was unaffected by levels of compensation significantly higher than already permitted by the NCAA.  The Justices also appeared unmoved by the NCAA’s reliance on the Supreme Court’s 1984 Board of Regents decision, with Justice Kagan noting that “a great deal has changed even since Board of Regents” and Justice Kavanaugh referring to Board of Regents as being “from a different era.”  Thus, the Court is unlikely to overturn the district court’s findings on that issue.
    • The Justices are clearly concerned with setting a precedent that would have unintended consequences beyond the immediate case.  Justice Gorsuch, for example, focused on the broader effect any decision would have on antitrust law, noting that the Court would usually give joint venture agreements “a pretty quick look” and that he did not “want to go back to the bad old days of reviewing any joint venture agreement that restricts competition through . . . something that looks like a strict scrutiny analysis,” but stated that the issue here is “unusual” because “at the center of the case is an agreement among competitors to fix price with the labor market” and that the “rule of reason” may be the appropriate approach to a monopsony.  Despite these concerns, we think the Court is unlikely to adopt a deferential “quick look” standard for evaluating joint venture restraints or any other approach short of a “rule of reason” analysis in evaluating restraints ancillary to joint ventures.  They are likely, however, to emphasize the role that market power plays in a rule of reason analysis and the fact that, unlike most joint ventures, which face varying degrees of competition, the NCAA has near complete monopsony power in the market for student-athletes.
    • Various members of the Court expressed concern about the problems of line drawing (e.g., various specific aspects of the district court’s injunction on education-related compensation), judicial micromanagement of joint ventures, and endless litigation over various aspects and iterations of the NCAA rules.  Chief Justice Roberts, in particular, seemed wary that too much court involvement in a joint venture’s decisions could be problematic, drawing an analogy to the board game Jenga, and suggesting that the constant challenging of individual restrictions could eventually cause the entire joint venture to topple.  Justice Breyer also raised concerns about courts redefining the rules of a joint venture.  Similarly, Justice Sotomayor asked why the district court’s order should not be considered price regulation, a task that courts have traditionally avoided, while Justice Thomas questioned whether some of the limits on compensation set by the district court’s injunction were arbitrary and subject to continuing litigation.  The argument did not provide any clear indication of how these issues might be resolved, although Justice Gorsuch at least suggested that these issues were not likely to be presented under a rule of reason analysis of joint ventures that are not monopolies or monopsonies.
    Based on the argument, it would not be surprising if the Court affirmed the Ninth Circuit based on the district court’s application of the “rule of reason” on the unique factual circumstances presented by this case, but coupled with appropriate caution that the decision is not an invitation to litigate all competitive restraints in joint ventures more widely.  Joint ventures that do not enjoy a substantial degree of market power should still be afforded a great deal of leeway under the rule of reason to define the conditions of the venture.