Are Conference-Level Student-Athlete Scholarship Limits Safe from Antitrust Scrutiny? (Guest Post)

Are Conference-Level Student-Athlete Scholarship Limits Safe from Antitrust Scrutiny? (Guest Post)
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This is a follow-up Guest Post by Professor Sherman Clark of the University of Michigan:

Are Conference-Level Student-Athlete Scholarship Limits Safe from Antitrust Scrutiny?

Sherman J. Clark

Following up my recent post about the line-drawing difficulties faced by courts dealing with antitrust challenges to NCAA amateurism requirements, I address here one potential solution—conference-level scholarship limits.

It is sometimes suggested that the invalidation of current NCAA amateurism rules would not lead to a full free market for players’ services. Instead, it is suggested that: 1) conference-level limits on scholarships or other payments to players would be legal under the Sherman Act; and 2) major conferences would adopt limits far short of a full free market. Neither of those assumptions, however, is warranted. 

I am not taking a position here as to whether or to what extent a full free market for the services of college football and basketball players would be good idea, or would alter or undercut the nature or appeal of college sports. My point here is simply that the slope to such a free market is more slippery than many seem to recognize, and that conference-level scholarship limits might not provide a safe stopping point.

Begin with the legal issue—assuming, for the moment, that conferences would in fact maintain scholarship limits. It is suggested that such limits would not present antitrust problems because conferences lack market power. That misunderstands the law.  A threshold showing of market power is requisite in Section 2 claims, and in many Section 1 claims.  But Section 1 claims involving proven price-fixing or wage-fixing do not, properly understood, require a separate showing of market power.  The extent of market power can be relevant as part of the rule of reason inquiry—although courts create confusion when they frame it that way; but proof of wage-fixing alone, which is itself proof of market power, can support a Section 1 claim without additional evidence of market power.

In particular, as litigation involving Ivy League schools two decades ago demonstrated, colleges are potentially liable under Section 1 of the Sherman Act for conference-level agreements fixing or limiting scholarships and financial aid. A purported lack of market power does not automatically shield them from such liability. And it is perhaps helpful to understand why this makes sense.

Antitrust law requires a showing of market power in many types of cases because it is often not clear whether a challenged practice will cause the kind of harm that antitrust law seeks to avoid.  In product market cases, that harm is the raising of prices and the reduction of output, which signals an inefficient allocation of resources and thus dead-weight loss. In labor market cases, the harm we are worried about is precisely analogous—lowering of wages, which leads to a misallocation of labor resources.  So, in some labor market cases, courts need to determine whether there is sufficient market power to cause the harm we are worried about—a lowering of wages. But if the case involves direct wage-fixing, there is no need for separate proof of market power.

Perhaps the better way to put it is this: the ability to fix wages is itself proof of sufficient market power. If conspirators have enough market power to fix wages, they by definition have enough market power to be potentially liable for it.

In evaluating conference-level limits on payments to players, therefore, courts would need to do at least some rule of reason analysis. And that in turn would hinge on nature of the particular limit. If major conferences were to impose only modest restrictions on the market, avoid depress wages more than necessary, and can show legitimate pro-competitive benefits, conference-level scholarship restrictions of some sort might survive Section 1 scrutiny.  But if conference rules are highly restrictive and attempt to retain something like the current scholarship-only regime, those rules might very well not survive that scrutiny. Keep in mind that the pro-competitive benefits to which conferences would point would be essentially the same as those that courts seem unwilling to accept in current cases involving the NCAA.

And yes, this does mean that even current athletic scholarship prohibitions or limits agreed upon by schools in conferences such as the Ivy League, and by Division III schools, are not necessarily immune to antitrust challenges.  Such challenges are unlikely, given that players in those leagues generally would have very little value in a competitive market.  And for the same reason, collusive restrictions in such leagues would likely survive rule of reason scrutiny if challenged—given the minimal negative effect on competition. But strict restrictions imposed by major conferences that do employ players with potential market value would be at risk of being found illegal.

Of course, the major conferences might not be eager or able to maintain strict restrictive limits, even if they could withstand a Section 1 challenge—at least not if they hope to remain major conferences. The logic behind the belief that such rules might survive antitrust scrutiny is that inter-conference competition will offset the intra-conference anti-competitive effect. Setting aside the legal merits and sufficiency of that argument, which are questionable, it does reveal something critical—the assumption that conferences would in fact compete.

If so, it is not clear that major conferences could or would maintain substantial limits on payments to players. The race for the bottom would be difficult to resist. In a world where teams in the SEC are paying players, would the Big Ten really concede the top talent by sticking to a scholarship-only policy—even assuming it were legal?  Many schools have great deal invested and at stake in being part of big time college football and basketball. It would take real fortitude to hold out.

I cannot predict how conferences would react if required or permitted to set their own athletic scholarship rules. No one can. It might take decades of realignment and readjustment to sort out. My point here is simply that both the forces of competition and the desire to avoid antitrust liability would tend to drive major conference scholarship rules in the direction of a full free market.

Again, it is a separate question whether a full free market for the services of college athletes would be a good thing—whether it would alter or undercut the nature or appeal of college sports and kill the goose that lays the golden eggs. But if we are at all concerned about the implications or consequences of heading in that direction, we should not assume that conference-level limits will provide a safe haven on the road from here to there.

Sherman J. Clarkis the Kirkland & Ellis Professor of Law at the University of Michigan Law School.