Source: https://truthonthemarket.com/2015/10/06/amateurism-and-antitrust-the-9th-circuit-gets-it-right-2/
Timestamp: 2019-04-25 00:25:01+00:00

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“The [9th Circuit] panel held that it was not precluded from reaching the merits of plaintiffs’ Sherman Act claim because: (1) the Supreme Court did not hold in NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85 (1984), that the NCAA’s amateurism rules are valid as a matter of law; (2) the rules are subject to the Sherman Act because they regulate commercial activity; and (3) the plaintiffs established that they suffered injury in fact, and therefore had standing, by showing that, absent the NCAA’s rules, video game makers would likely pay them for the right to use their names, images, and likenesses in college sports video games.
The panel held that even though many of the NCAA’s rules were likely to be procompetitive, they were not exempt from antitrust scrutiny and must be analyzed under the Rule of Reason. Applying the Rule of Reason, the panel held that the NCAA’s rules had significant anticompetitive effects within the college education market, in that they fixed an aspect of the “price” that recruits pay to attend college. The record supported the district court’s finding that the rules served the procompetitive purposes of integrating academics with athletics and preserving the popularity of the NCAA’s product by promoting its current understanding of amateurism. The panel concluded that the district court identified one proper less restrictive alternative to the current NCAA rules – i.e., allowing NCAA members to give scholarships up to the full cost of attendance – but the district court’s other remedy, allowing students to be paid cash compensation of up to $5,000 per year, was erroneous. The panel vacated the district court’s judgment and permanent injunction insofar as they required the NCAA to allow its member schools to pay student-athletes up to $5,000 per year in deferred compensation.
The key point of the 9th Circuit’s decision, that competitively restrictive rules are not exempt from antitrust scrutiny because they promote the perception of “amateurism,” is clearly correct, and in line with modern antitrust jurisprudence. The Supreme Court has taught that anticompetitive restrictions aimed at furthering the reputation of the learned professions (see Goldfarb v. Virginia State Bar (1975), striking down a minimum legal fee schedule for title searches), and their ability to advance social goals effectively (see FTC v. Superior Court Trial Lawyers Association (1990), condemning a joint effort to raise government-paid legal aid fees and thereby “enhance” the quality of legal aid representation), are fully subject to antitrust review. Even the alleged desire to ensure that quality medical services are not sacrificed (see FTC v. Indiana Federation of Dentists (1986), rejecting a dental association’s agreement to deny insurers’ request for procedure-specific dental x-rays), and that safety is maintained in major construction projects (see National Society of Professional Engineers v. United States (1978), striking down an ethical canon barring competitive bids for engineering services), do not shield agreements from antitrust evaluation and potential condemnation. In light of those teachings, the NCAA’s claim (based on a clear misreading of the Supreme Court’s NCAA v. Board of Regents (1984) decision) that its highly restrictive “amateurism” rules should be exempt from antitrust review is patently absurd.
“[T]he NCAA sharply limits the number of athletic scholarships, and even more importantly, limits the size of the scholarships that schools can offer the best players. NCAA rules also severely restricts the gifts and housing players are allowed to receive from alumni and others, do not allow college players to receive pay for playing for professional teams during summers or even before they attended college, and limits what they can be paid for non-playing summer work. The rules are extremely complicated, and they constitute hundreds of pages that lay out what is permitted in recruiting prospective students, when students have to make binding commitments to attend schools, the need to renew athletic scholarships, the assistance that can be provided to players’ parents, and of course the size of scholarships.
It is impossible for an outsider to look at these rules without concluding that their main aim is to make the NCAA an effective cartel that severely constrains competition among schools for players. The NCAA defends these rules by claiming that their main purpose is to prevent exploitation of student-athletes, to provide a more equitable system of recruitment that enables many colleges to maintain football and basketball programs and actively search for athletes, and to insure that the athletes become students as well as athletes. Unfortunately for the NCAA, the facts are blatantly inconsistent with these defenses. .
A large fraction of the Division I players in basketball and football, the two big money sports, are recruited from poor families; many of them are African-Americans from inner cities and rural areas. Every restriction on the size of scholarships that can be given to athletes in these sports usually takes money away from poor athletes and their families, and in effect transfers these resources to richer students in the form of lower tuition and cheaper tickets for games. . . .
[T]he graduation rates for these minority students-athletes are depressingly low. For example, the average graduation rate of Division I African American basketball and football players appears to be less than 50%.
“The National Collegiate Athletic Association behaves monopsonistically in forbidding its member colleges and universities to pay its athletes. Although cartels, including monopsonistic ones, are generally deemed to be illegal per se under American antitrust law, the NCAA’s monopsonistic behavior has thus far not been successfully challenged. The justification that the NCAA offers – that collegiate athletes are students and would be corrupted by being salaried – coupled with the fact that the members of the NCAA, and the NCAA itself, are formally not-for-profit institutions, have had sufficient appeal to enable the association to continue to impose and enforce its rule against paying student athletes, and a number of subsidiary rules designed to prevent the cheating by cartel members that plagues most cartels.
Well, Alden, I must say that your mighty attempt to explain the antitrust rationale for this legal action is quite a stretch to say the least! I’ll have to let other readers of this wonderful blog decide whether increasing the supply of collegiate players ( and potentially enhancing the quality of sports from a consumer perspective) is: 1. what all of this antitrust interference is all about and 2. whether it’s all worth it or not. My read is that it’s all about income redistribution, not efficiency, but I could be wrong.
Thanks again, Don. No doubt income redistribution has something to do with it. Indeed, income redistribution is a key aspect of almost all antitrust cases, including cartel cases (although combating allocative inefficiency is, of course, the economist’s traditional justification for going after cartel price fixing). That is not inconsistent, however, with the notion that broad exemptions to antitrust scrutiny (such as one based on “amateurism”) should be disfavored.
I fully agree that the highest-valued use of antitrust would be to combat government-imposed competitive restraints, bu the ability of antitrust enforcers to do that is somewhat limited by the “state action” and “petitioning” doctrines developed by the Supreme Court. (However, there are some recent signs that the Supreme Court is narrowing its state action exemption.) As to the consumer welfare point, it would appear that the narrowing of NCAA rules (I do not call for full elimination, since that arguably would totally eliminate “amateurism”) that limit competition among colleges for student athletes would tend to raise returns to participating in intercollegiate sports, thereby raising the supply of players into intercollegiate sports and at least potentially enhancing the perceived quality in consumers’ eyes of the affected sports competitions.
Some academics are convinced that the antitrust laws are a “consumer welfare prescription” (as you put it) but almost nothing in antitrust history (Congressional debates, case history, ect.) convinces me that this has ever been the predominant focus of antitrust enforcement. Second, very little in this NCAA ruling concerns itself with “consumers” let alone their welfare. The focus is to argue that (poor) students would be better off absent some NCAA restrictions on earnings while in college. Wow, that’s news! But what does any of that have to do with consumer welfare? Third, NCAA rules that restrain “competition” may not be perfect (whatever that means) but increased government regulation (and antitrust is regulation) to terminate private rules that seek, presumably, to maintain some sort of a competitive balance in college sports, strikes me as an example of “fatal conceit.” Ending the “reserve clause” in baseball increased player salaries; did it increase consumer welfare? Baseball (and college sport) is surely a business but, to my knowledge, their “cartel” status is unsupported by State power. Antitrust would have plenty to do if it just concerned itself with ending State restrictions on entry into markets…and left private contract “restraints” alone.
Thanks for your summary of the NCAA case and your comments. Actually I tried to keep my “philosophy” out of the discussion above. Even accepting the existence of antitrust law, I simply suggested that those resources might best be applied to State restrictions on entry (into markets) and competition. Private restraints (absent government support) are, in my judgment, far less harmful to the general welfare than State prohibitions of competition or misapplied antitrust enforcement in areas previously exempt. (I would, for instance, NOT apply the antitrust laws to labor union activity). But even accepting your (mainstream) framework for applying a rule of reason and making judgments concerning efficiency, what “outputs” are we talking about that get restrained by NCAA rules, and what “prices” are we focusing on here in terms of consumer welfare? It was suggested in the case comments that (some) students would likely earn more absent NCAA restrictions. So what does that have to do with consumer welfare? Perhaps I’m missing something.

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