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A Big Win for College Athletes?

Yes, but...

andrew zimbalist is the Robert A. Woods Professor of Economics at Smith College. His latest book, Whither College Sports?, will be published in November.

Published July 20, 2021


At long last. After decades of mismanaging college sports and facilitating the exploitation of college athletes while smiling benevolently on the exorbitant salaries bagged by coaches and athletic administrators, the National Collegiate Athletic Association is getting its comeuppance. Just how much this will mean for non-star athletes at the bottom of the food chain is not yet clear, however.

I get ahead of myself. The NCAA’s comeuppance has, in fact, been coming in slow motion for quite a while. The organization has faced a portending stream of losses in antitrust cases going back to 1998. But, in its arrogance, the NCAA had clung to a passing comment by Supreme Court Justice John Paul Stevens in a 1984 decision on television broadcasting as evidence that the courts would never sweep away the cover for acting as a cartel that is provided by its “amateurism” rules.

In fact, the most recent case reviewed by the Supreme Court ended any hope that the court would give the NCAA a free pass on antitrust matters. And now, with a slew of state legislatures following up with so-called NIL legislation that ensures amateur athletes the right to profit from their “names, images and likenesses,” the NCAA is on the defensive wherever it turns.

The big question: what happens now to the organization of big-time college sports programs and the athletes who serve them? And that is far from obvious.

A Trip Down Memory Lane

Start with a closer look at the NCAA’s brushes with the antitrust laws. In the aforementioned 1984 decision, the Supreme Court ruled that the NCAA could not restrict the right of schools and athletic conferences to sign their own television contracts. Then, in 1998, a lower court ruled that the NCAA could not restrict the earnings of assistant basketball coaches. Then, in 2008, the NCAA settled an antitrust suit that contested its limit on the size of athletic scholarships to less than the full cost of attending college. Then, in 2014, U.S. District Court Judge Claudia Wilken in the Ninth Circuit ruled that NCAA limits on scholarships and income from publicity rights constituted an antitrust violation.

All this was preface to the proverbial stake through the heart: on June 21, 2021, the Supreme Court upheld a lower court ruling that the NCAA’s cap on “educationally tethered” benefits to athletes (everything from providing athletes with computers to private tutoring services, internships, study abroad stipends and graduate fellowships) violated the Sherman Act. What’s more, the Court explicitly affirmed that the NCAA is subject to the nation’s antitrust laws.

The NCAA could, in theory, continue to fight this dubious fight. But after spending over $200 million on antitrust cases without chalking up a single win, the NCAA has assumed an uncharacteristically meek and defensive posture.

The NCAA Brought Low

There is no better illustration of this about-face than the NCAA’s new interim policy regarding NIL rights for college athletes. The policy states that schools in states that have not passed NIL laws can still grant NIL rights to their athletes — provided they do not allow recruitment inducements or figure out furtive ways to pay athletes with their colleges’ money. The NCAA is hoping that sooner rather than later Washington will legislate limits on the scope of athlete NIL rights and then allow the association to police the system.

Congress will probably act eventually, but its members are sharply divided over what rights college athletes should have. Over a dozen related bills have been introduced in the past two years. Some extend athletes’ rights to allow compensation directly from athletic department revenues, some grant athletes collective bargaining rights, some mandate current and future medical care for athletes, while others offer a much narrower and circumscribed range of NIL rights under varying degrees of NCAA control.

Until Congress does act, college sports will be in limbo. At this point, the NCAA is loath to try to enforce its policies on schools and conferences that are inclined to remove most or all restrictions on remuneration in the hopes of attracting the best high school athletes in the land. And with the door open a crack already, it’s easy to imagine how it could swing wide open.

Much NIL income that will go to athletes (probably several hundred million dollars a year) will come from reductions in athletic departments’ revenue, engendering larger athletics deficits — and, likely, draining cash from the education budgets of universities.

Consider the market for NILs. The NCAA’s compromise idea is that athletes can enter into contracts only with third parties and, hence, not contaminate the educator-student relationship. But suppose a local business in, say, Ann Arbor makes a deal with the Michigan Wolverines’ athletics director to offer a football recruit a $25,000 contract for appearances at his auto dealership — in return for which, the car dealer gets a “free” luxury box for six Michigan home games. Isn’t this just a backdoor form of the pay-for-play that the NCAA is fighting?

Or suppose that Ohio State offers one of its recruits a $50,000 summer internship to work for a professor — nominally an education-related benefit. How is this really different from paying an athlete to play?

Or consider a school that offers to buy loss of value insurance for its top athletes, which would allow a star player who suffered a career-threatening injury in college to recoup the income they might have earned in the pros. The NCAA has already permitted schools to help athletes purchase limited LOV insurance in recent years using funds from the association’s student assistance funds. But if LOV insurance is considered to be educationally tethered, as the NCAA claimed it was in oral arguments before the Supreme Court (because the insurance induces star athletes to stay in college), then schools would be unrestricted in how big a policy they could purchase to induce a prospective student to attend.

Indeed, one could imagine insurance policies that paid out millions. But if all it takes for a benefit to be deemed educationally tethered is inducing an athlete to stay in college, then just about any benefit could qualify. More surreptitious pay for play.

The Supreme Court did say that the NCAA could set reasonable limits on educationally tethered and NIL benefits. But “reasonable” is not defined, so the NCAA can still be challenged in court for restraint of trade.

The court added that if the NCAA is unsure whether a restraint is reasonable, it could always return to Judge Wilken (who wrote the District Court decision) for clarification. The problem, of course, is that there may be dozens and dozens of such questions, and Judge Wilken may not always be able to give timely and unambiguous answers. So, in the meantime, the NCAA seems likely to let questionable NIL deals and educationally tethered benefits proliferate. Once the cat is out of the bag, will it be possible to put it back in?

The Ball Back in Congress’s Court

Now, you might still be wondering what the problem is. Hasn’t the Supreme Court simply affirmed that colleges (and NCAA administrators) can’t conspire to skim off the profits from the performances of star athletes? Didn’t the good guys win?

Maybe. But keep in mind that college athletics isn’t nearly as lucrative as is widely assumed. Only around 25 university athletic departments run operating surpluses, while the other 326 Division I departments lose money (with a median deficit of about $15 million yearly). Clearly, then, most schools will never be able to successfully compete in the NIL and educationally tethered benefit markets. Indeed, much NIL income that will go to athletes (probably several hundred million dollars a year) will come from reductions in athletic departments’ revenue, engendering larger athletics deficits — and, likely, draining cash from the education budgets of universities.

While NIL income and educational benefits will help to balance the scales and reduce the financial exploitation of college athletes (a majority of whom in Division I football and men’s basketball are black), remember that college sports is the extracurricular tail wagging the educational dog. Ninety-eight percent of Division I football and men’s basketball players will never play a game in the NFL or NBA. So getting a real college education will prove a much larger factor in their lives than the few thousand dollars they may or may not make from NIL deals while in college.

In short, treating college athletics purely as a business in the context of conspiracy to restrain trade isn’t going to solve every problem created by the Faustian bargain between higher education and big-money sports. Congress must keep its eye on the educational ball, as it tries to figure out an effective plan for reducing the financial exploitation of college athletes.

main topic: Sports