robert litan is a nonresident senior fellow in the Economics Studies Program at the Brookings Institution and a columnist on sports law and economics for TheAthletic.com.
Published October 28, 2019
When some think of the NCAA’s century-long defense of “amateurism” in college athletics, they think of unfairness. How can the sums paid in scholarships to college athletes be so sharply limited while their universities, coaches and athletic directors rake in millions?
When I think of the NCAA’s amateurism rules and enforcement apparatus, I think of that, too — but also of the last lines of a poem by Percy Bysshe Shelley many will recall from high school English class:
“My name is Ozymandias, King of Kings; Look on my Works, ye Mighty, and despair!” Nothing beside remains. Round the decay Of that colossal Wreck, boundless and bare The lone and level sands stretch far away.
Much like the oceans and the wind that buried Ozymandias’s empire, forces have been battering the NCAA amateurism rules and the market power they defend. One way or another, these forces are likely to reduce those rules to the sports equivalent of the “colossal Wreck” in Shelley’s poem.
A Little History
With the current focus on whether college athletes should be paid and how much, it is tempting to believe that this issue — specifically, the preservation of “amateurism” — was the major reason the NCAA was created. It was, to be sure, one of the reasons, but certainly not the driving force. At the turn of the 20th century, the violence of football was the dominant issue in college sports. The game was then played without helmets or pads, and in almost an “anything goes” style. Even President Theodore Roosevelt, who never backed away from a fight, couldn’t tolerate the football mayhem and pressured colleges to make the game safer. This led to the formation in 1905 of the Inter-Collegiate Athletic Association, which in 1910 changed its name to the National Collegiate Athletic Association. Today, the NCAA has over 1,100 member schools, of which about 350 belong to Division I, which has the most competitive athletic programs.
It is true that, in addition to setting rules aimed at protecting the safety of college athletes (which are still not adequate), from the start the NCAA set and enforced rules — principally caps on scholarships and third-party payments — to ensure the athletes remain “amateurs.” Over time, the NCAA has offered two justifications for these restrictions, as revealed through litigation:
- Fan interest won’t be maximized in collegiate athletics, especially in the big-revenue sports, basketball and football, unless the players are not professionals.
- Scholarship caps ensure “student-athletes” are integrated into the college community, which improves the quality of the athletes’ education.
In fact, for its first 50 years, the NCAA prohibited college athletes from receiving “compensation” of any kind, including scholarships. Only in 1956 did it first allow schools to offer “grants-in-aid” to students for playing specific sports, but with a condition: the grants could be given only for a student’s educational expenses (tuition, room, board and books) and a small amount for incidental expenses (such as laundry). In 1976, the NCAA disallowed even incidental expenses. All along, the organization has prohibited college athletes from accepting endorsement fees or compensation for rights to use their names, images and likenesses (in legalese, NILs).
In 2009, former UCLA basketball star Ed O’Bannon discovered that his image was being used, without his consent and compensation, in a video game developed by Electronic Arts.
He sued the company as well as the NCAA on behalf of himself and other former Division I athletes (and later, then-current Division I athletes) in the federal court for the Northern District of California. His claim: that the defendants restrained trade under the Sherman Antitrust Act by conspiring to deny compensation for NIL rights.
The big video game maker settled for $40 million before the case went to trial. As recounted in the book Court Justice, co-authored by O’Bannon, after his attorneys reported that focus groups were not especially sympathetic to the athletes’ claims — many apparently felt that the athletes were already getting enough through their scholarships — O’Bannon chose to forego a jury trial and instead have his case decided by the presiding judge, Claudia Wilken.
O’Bannon and the class of plaintiffs he represented largely prevailed, even under the relaxed “rule of reason” standard the courts have applied to the joint conduct of NCAA schools. Federal courts presumptively view collusion among private firms on price or output as harmful to consumers. But since the Supreme Court’s 1984 decision in NCAA v. Board of Regents of Oklahoma, they have acknowledged that a governing body such as the NCAA representing colleges is necessary to permit sporting events to take place. Nonetheless, they have struck down joint agreements, such as the restrictions on televising college football games at issue in Board of Regents, where no “pro-competitive” justifications exist and where the joint conduct is not the least restrictive means of achieving a legitimate objective.
In O’Bannon, Judge Wilken ruled in 2014 that the NCAA’s prohibition on athletes’ receiving payment for their NILs did restrain trade and could not be justified by any pro-competitive benefits claimed by the NCAA. She accepted the plaintiffs’ proposed alternative — that athletes be given more generous scholarships than were currently allowed, up to the “full cost of attendance” at their schools, which would have upped the limit by a few thousand dollars in spending money — and then she added $5,000 for each year they played, to be held in trust until they were older.
The NCAA appealed Wilken’s ruling, but hedged by agreeing to allow the top-five athletic conferences to set their own scholarship caps. And before the appellate court handed down its ruling upholding Wilken, the conferences adopted the new cap as their own in August 2015. The appeals court, it’s worth noting, did nullify the trust fund part of Wilken’s ruling.
The NCAA has continued to defend “amateurism,” but only as it defines the term. Under the NCAA’s convoluted rules, college athletes on scholarship are “amateurs” only when playing the sports for which they were recruited. That means a college football player can still be an “amateur” while being compensated for playing another sport as a pro. That’s what Clemson’s former quarterback, Kyle Parker, did when he accepted a $1.4 million signing bonus in 2010 to play baseball.
Consider, too, that the NCAA has also carved out an exception to its amateurism rules for payments to Olympians, even for competing in the same sport for which they have a college scholarship. In 2016, University of Texas swimmer Joseph Schooling cashed in on this exception by lawfully keeping his scholarship and the $740,000 bonus that his home country, Singapore, awarded him for winning a gold medal at the 2016 Olympics — a race in which he beat swimming legend Michael Phelps. College tennis players can also receive some professional prize money and still retain their scholarships, while schools can buy expensive “professional futures” insurance that compensates their star athletes if their careers are cut short by injury.
The NCAA’s Swiss cheese definition of amateurism is especially odd given how much money the colleges take home from sports in which the athletes can collect only up to the full cost of attendance. For example, the NCAA earns on its member-colleges’ behalf roughly $1 billion a year from the March Madness basketball tournament, and signed a $19.6 billion contract with CBS and TNT for TV broadcast rights through 2032 for the men’s tournament alone.
Schools with the largest football programs — those belonging to the Football Bowl Subdivision — have a multiyear TV contract with ESPN that generates $5.6 billion, while each of the big-five conferences brings in hundreds of millions of dollars annually from basketball and football TV rights for their schools, with the Southeastern Conference topping the list at over $600 million. Most of these funds do not flow through to students, but instead support high (often multimillion- dollar) salaries for coaches, as well as fancy stadiums, practice facilities and special athletic dorms. (So much for “integrating” college athletes with the rest of their campuses.) Athletic departments also get a piece of the action to subsidize other, less telegenic sports.
Ozymandias, Move Over
The NCAA’s rejiggered scholarship limits are already under attack in the courts. After O’Bannon filed his suit challenging the NCAA’s rule prohibiting college athletes from accepting money for their NIL rights, several former athletes filed antitrust suits in different parts of the country alleging that the NCAA’s “full cost of attendance” scholarship cap was also an unlawful restraint of trade. These cases were consolidated under the legal title In Re: NCAA Grant-in-Aid Cap Antitrust Litigation in the same federal district (and before the same judge, Claudia Wilken) where O’Bannon was decided. Obviously encouraged by Wilken’s ruling in O’Bannon, the plaintiffs in the grant-in-aid litigation asked to have her rather than a jury decide their case.
After a trial in September 2018, Wilken ruled in March 2019, again applying the rule of reason she and other courts have used when assessing the legality of NCAA member-school joint conduct. The 104-page opinion was carefully crafted to hew to the Court of Appeals for the Ninth Circuit’s legal reasoning in O’Bannon and, somewhat unexpectedly, gave something to each side.
Judge Wilken noted that fan enthusiasm did not decline after the NCAA raised its scholarship limit in 2015.
Judge Wilken aligned with the plaintiffs in finding that the scholarship caps reduced competition for recruits, and that both “pro-competitive justifications” for the caps advanced by the NCAA lacked support. Specifically, she found no evidence that the caps were necessary to promote fan interest in collegiate sports, noting that fan enthusiasm did not decline after the NCAA raised its scholarship limit in 2015. Wilken also rejected the claim that the caps were necessary to promote athletes’ education, finding that their education wasn’t impaired by that scholarship increase — and, in any event, was promoted by tutoring and other support initiatives, not by the caps.
However, Wilken did accept the NCAA’s assertion that it was essential for the “product” of collegiate sports to maintain a distinction from professional sports, and thus that it had a legitimate goal to prevent “unlimited payments” to athletes. But she found that the agreement among the NCAA’s member-schools was not the “least restrictive” means of meeting this objective.
Instead, Wilken adopted a variation of an alternative pressed for by the plaintiffs: allow competition among athletic conferences to determine scholarships worth more than the full cost of college attendance, but only if the amounts of financial aid were tied to education. For example, Wilken’s ruling would permit conferences to set caps that also allowed reimbursement for graduate school and certain education-related equipment not allowed under the NCAA’s current caps — but no more than that.
Stars in revenue sports at smaller colleges would likely find endorsment deals from local car dealers, restaurants and other merchants.
The NCAA thus avoided its worst nightmare: a free market in which colleges bid for athletes with cash. Wilken also allowed the organization to restrict noneducational compensation, such as payments for NIL rights, and to impose caps on academic or graduation prizes no lower than the current ones. But she retained jurisdiction over all future disputes regarding the lawfulness of any caps imposed by the NCAA or the conferences.
Unsurprisingly, the NCAA has appealed Wilken’s decision, which transfers much of the power over athletic scholarships to the conferences — and to her. Note, though, that the NCAA still has something to lose in going back to court: Wilken’s kept the Swiss cheese definition of amateurism alive, for the time being.
Assaulting the Cartel
That time may be limited, at least with respect to athletes being compensated for their NIL rights, regardless of the appellate court’s views. At the behest of the California State Senate’s majority leader, Nancy Skinner, the California legislature enacted the Fair Pay to Play Act in mid-September 2018 to permit any university in the state to allow third parties to pay their college athletes for NIL rights. At this writing, the legislation is awaiting Governor Newsom’s signature. The governor’s imprimatur is likely moot, though, since the bill passed with veto-proof bipartisan support in both the Senate and the Assembly.
Some have voiced concerns that an unrestricted market in NIL payments would only benefit a handful of players — the Zion Williamsons of the world — and then only in the major revenue sports, basketball and football. This worry is overstated. There are plenty of star athletes in nonrevenue sports, especially in Olympic years for Olympic medal winners, who could benefit from earning at least some NIL money. Even stars in the revenue sports at smaller colleges would likely find endorsement deals from local car dealers, restaurants and possibly other merchants or companies that now use only coaches in their commercials. In fact, the fear that this would happen very likely explains why California universities opposed the Fair Pay to Play Act. The schools, their coaches and athletic directors all worry (legitimately) that the commercial interests now paying them will reduce those payments if they can get athletes themselves to endorse their products.
My own response to that concern is “tough.” The purpose of the legislation, after all, is to be fairer to the athletes whose play brings in the fans, and who literally put their bodies on the line in practices and games. Why should college students with extraordinary athletic abilities be denied the same commercial opportunities that have long been available to students with, say, acting talent or computer coding skills? And then there is the not-so-subtle issue of race. Many star athletes with NIL-earning ability are black and come from disadvantaged backgrounds. What’s the fairness in denying them earning opportunities while they are in school — opportunities that in some cases might keep them in school?
The NCAA might eventually accept some of these arguments, but for turf reasons alone and only on its own terms and its own schedule. It thus was no surprise that the NCAA tried to divert California from passing its NIL bill. After Skinner’s proposal was introduced in the California Senate, the NCAA announced it was creating a working group, headed by Big East Conference Commissioner Val Ackerman, to reexamine the NCAA’s existing policy prohibiting athletes from receiving NIL payments above scholarship limits and to report its recommendations by October 2019.
Following up on this effort, NCAA President Mark Emmert sent a letter to two of the State Assembly committees that took up the bill. He warned that if the NIL bill were passed, it would “alter materially the principles of intercollegiate athletics and create local differences that would make it impossible [for California] to host fair national championships.” In other words, no Rose Bowl, or potentially any NCAA Madness basketball games, and certainly not any Final Four. That warning did not deter the Assembly from passing the bill. If anything, it may have stiffened the spines of some California legislators.
It is possible, but unlikely, that the Ackerman group will recommend a policy on NIL payments close to the approach authorized by the California bill. My guess is that, at most, the group will suggest a cap on NIL payments to individual athletes, and possibly require any NIL payments to be shared with the athletes’ team members or their school’s athletic department. (In other words, divide to conquer.)
But the NCAA may feel it is legally constrained from making even this limited concession. Judge Wilken, in the Grant-in-Aid litigation, and the Ninth Circuit Court of Appeals, in the O’Bannon NIL case, have already held that colleges are permitted to vary financial aid awards up to the full cost of attendance only as long as they are “tethered to education” — and clearly, NIL payments from universities would violate this standard. A potential way out of this legal box — one the NCAA’s lawyers would need to embrace if the working group recommends allowing some types of NIL payments — is for the NCAA to argue that the courts’ rulings requiring payments to athletes to be tethered to education apply only to university payments, but not if the payments come from third parties. In other words, by Nike or Coke, but not by the Universities of Kentucky or Michigan.
Some have voiced concerns that an unrestricted market in NIL payments would only benefit a handful of players — and then only in the major revenue sports.
In any event, the game of chicken between California and the NCAA likely will continue until the date the California statute goes into effect (2023). Or it could end sooner, if the NCAA makes good on its new threat, issued to Governor Newsom in a September 11 letter, that the NCAA would have no choice but to ban California’s college from all NCAA intercollegiate sports if the bill becomes law.
The letter also strongly implied that the NCAA would sue the state on grounds that its actions would destroy the uniformity of the organization’s NIL rules across the states, constituting an “undue burden on interstate commerce.” The NCAA would have strong precedent on its side. In NCAA v. Miller (1993) it overturned a Nevada statute that imposed due process requirements on the NCAA’s investigations on precisely this basis. This came in the wake of the organization’s directive to the University of Nevada, Las Vegas to punish its legendary basketball coach Jerry Tarkanian for recruiting infractions.
What leverage would California then have? Theoretically, one or more California schools could sue the NCAA for imposing an unlawful group boycott against the state. Such a suit would be an uphill battle to win, however, because the NCAA would have a plausible defense: if only athletes attending California schools can be paid for their NILs, then those schools would have an unfair advantage in
recruiting athletes vis-à-vis other states.
The state has other, better sources of leverage. For one thing, California is home to three universities with powerful sports franchises (UCLA, USC and Stanford) and several other programs with a strong presence in basketball or football or both, not to mention roughly 50 million people — many of whom seem willing to put up with beer commercials to watch their favorite teams.
Would NCAA members risk losing TV revenue from so many households, especially if the California schools reached out to schools in other states and conferences to join them in a breakaway effort from the NCAA itself? At the same time, California legislators could be expected to lobby other states to pass similar NIL legislation, perhaps enlisting the support of more pro athletes like LeBron James, who has publicly backed the California bill. A pro athlete revolt, joined with fan support, would put pressure on the NCAA to come closer to the California position.
A compromise that would permit but limit NIL compensation in some fashion — is the most likely (but not inevitable) result of any conflict between California and the NCAA. Of course, a compromise would drill an even deeper hole in the Swiss cheese definition of amateurism the NCAA has been clinging to.
Adam Smith to the Rescue?
Whatever else happens, market forces could obliterate the amateurism pretense altogether, at least for basketball. The Australian National Basketball League is working hard to attract star American high school players wanting to be paid to play for a year, instead of going to college for a year, to become eligible for the NBA draft. In June, LaMelo Ball signed a two-year contract with the Illawarra Hawks (which lets him out if he is drafted by the NBA before the two years). Ball follows another top prospect, R.J. Hampton, who inked a deal with the New Zealand Breakers in the same Australian league. More star recruits could follow; after all, playing ball in English-speaking Australia for a hefty paycheck may be no greater a leap for a small-town athlete from Georgia than spending a year in Lawrence, Kansas, or East Lansing, Michigan.
The Historical Basketball League (HBL) represents a potentially even more disruptive force for undermining the NCAA’s market power. The league, which plans to open next summer, expects to pay players $50,000 -- $150,000 and give them scholarships to attend college in nonconsecutive years — that is, to finish on their own time, perhaps during a later NBA career, or after their basketball days are over. In addition, HBL players will be able to earn NIL money, probably more than anything the NCAA is likely to ever allow.
Unlike current professional sports leagues, which are confederations of separately owned teams, the HBL plans to operate as a single entity, owning each of its first eight teams in cities along the Eastern Corridor from Philadelphia to Atlanta. It will not compete with college basketball head to head, but instead play during the summer in smaller venues (of 3,000 to 8,000), which now sit largely empty.
Will all this be enough to attract the $15-20 million the founders say they will need to begin playing next summer? Hard to say. But if the HBL can beat the odds, it could amp up the competition for conventional college basketball players, further pressuring the NCAA to loosen its NIL prohibitions, and possibly its scholarship limits.
An HBL equivalent for football would be much more expensive, given the much larger sizes of the teams and needed venues. But amateurism for football players, at least at the most successful football programs, could be threatened in another way.
Stewart Mandel, chief editor for college football at The Athletic, has proposed a “premier” subset of the highest-profile college football programs that would withdraw from the NCAA and form their own super league with its own TV package. Because the teams would be outside the NCAA, athletes would not be subject to that organization’s scholarship limits. And they could expect to be compensated substantially more than the current full cost of attendance, which is only fair given the additional revenue such an arrangement would generate for the participating schools.
• • •
Martin Luther King Jr. was, among many things, a great orator. One of his most memorable lines — one repeated frequently by President Obama — is apt here. “The arc of the moral universe is long, but it bends toward justice.” College athletes, legislators and entrepreneurs who have been challenging the NCAA’s amateurism rules are counting on it.