Courts Seem Poised to Weaken NCAA’s Limits on Compensation of College Athletes

As a lawyer or judge might put it, the perennial legal issue of whether college athletes can be paid is now ripe. To understand the current state of affairs with regard to the legal status of the NCAA’s policies on payment of student-athletes, we must begin by reviewing some recent history.

On June 18, 2012, the Seventh Circuit Court of Appeals upheld a district court’s grant of summary judgment to the defendant in the case Agnew et al. v. National Collegiate Athletic Association (NCAA). But this was one of those cases wherein the judge’s reasoning was actually more important than the decision. The plaintiffs were football players who earned scholarships to play at NCAA Division I football programs, suffered career-ending injuries while playing, then did not have their scholarships renewed and were forced to pay their tuition out of pocket to complete their education. Their argument in the case was that, but for the NCAA’s bylaws, which limit the number of scholarships schools can offer to athletes and prohibit schools from offering multi-year scholarships, these players would have been offered four- or five-year scholarships.

The question for the court in Agnew was whether the NCAA’s policies violated the Sherman Antitrust Act. To show this, the plaintiffs would have to prove three elements: (1) a contract, combination, or conspiracy; (2) a resultant unreasonable restraint of trade in [a] relevant market; and (3) an accompanying injury. The circuit court determined that the first element had been provided, since “there is no question that all NCAA members schools have agreed to abide by the bylaws.” It also did not deny that these athletes suffered substantial economic damages in having to either pay for the remainder of their education, after their scholarship support ended, or else absorb the cost of transferring to a new school. The decision came down to one issue, then: whether the plaintiffs had shown that the NCAA’s policies “restrained trade in a relevant market.”

In its motion for summary judgment, the defendant argued that the plaintiffs had failed to define precisely the market within which the alleged anti-competitive actions were supposedly taken. “…we believe,” the court states, “it is incumbent on the plaintiff to describe the rough contours of the relevant commercial market in which anticompetitive effects may be felt. It must therefore be determined whether the actual markets allegedly identified in plaintiffs’ complaint–the market for bachelor’s degrees and the market for student-athlete labor–were actually identified…The district court held that plaintiffs failed to identify in their complaint either of the markets they now present, and we agree.” In short, the plaintiffs made a strategic error by failing to include any definition of the relevant market in their complaint.

Interestingly, though, the court went on (seemingly) to offer advice to future plaintiffs pursuing similar claims. It explained that the notion of a market for bachelor’s degrees would be problematic on several grounds. For example, strictly speaking it is not bachelor’s degrees, but only educational instruction, that students purchase; also, the class of consumers of bachelor’s degrees includes far more people than college athletes. But on the other hand, the court volunteered, “the market for student-athletes…would meet plaintiffs’ burden of describing a cognizable market under the Sherman Act. As an initial matter, labor markets are cognizable under the Sherman Act.” “Unfortunately for plaintiffs, nothing resembling a discussion of a relevant market for student-athlete labor can be found in the amended complaint. Indeed, the word labor is wholly absent.”

The natural conclusion from the circuit court’s discussion of Agnew is that another plaintiff or plaintiffs making essentially the same claims as the plaintiffs in this case, could prevail if they alleged that the NCAA was violating the Sherman Act by interfering with the market for student-athlete labor. And there is a current case that does exactly this: in Rock v. the National Collegiate Athletic Association, plaintiff John Rock asserts, on behalf of himself and a broadly-defined class of similarly situated individuals, that in its efforts to avoid paying student-athletes while channeling hundreds of millions of dollars to itself, the NCAA and its member institutions have “unlawfully agreed to artificially fix or reduce the amount of athletics-based scholarships to be awarded to class members in exchange for the student-athletes’ labor by agreeing amongst themselves not to offer multiyear athletics-based scholarships and by agreeing among themselves to artificially limit the overall supply of athletics-based scholarships.”

The plaintiffs in Rock followed the Seventh Circuit‘s advice almost to the letter, in the process quoting their ruling from Agnew at length, and seem to have made the case that the appeals court wished it had heard.

A ruling in favor of the plaintiffs in Rock would be, so to speak, a real game-changer. Perhaps it would become precedent for eventually allowing colleges to compete for student-athletes by (finally) offering to pay them for their work.

If you believe your rights have been violated by a current or recent employer, please contact The Harman Firm, LLP.