Legal Issues in NCAA Payment of College Athletes

Legal Issues in NCAA Payment of College Athletes

Student-athlete compensation began in September 2019 when Gavin Newson signed a bill allowing students in California competing in college athletics to get representation and compensation. The Bill went into effect in 2023 and was added to California’s education code. The central provision of the Bill was a “Fair Pay to Play Act” that challenged the rules that prohibited student-athletes from getting compensated. The Act also stated that any organization or group with authority over college athletes should not prevent the athletes from getting compensated by NIL. The Act’s provision would also apply to students in postsecondary learning institutions. The postsecondary education students would be covered under the provision stating that any organization or group with any authority over athletes in postsecondary learning institutions should not prevent the learning institution from competing in intercollegiate sports because of the compensation of one of its athletes. The Act also allowed student-athletes to acquire professional representation regarding contacts and legal matters, legal representation by an attorney, and agent representation. However, professional representation would be offered after obtaining a license in California and demonstrating compliance with relevant parts of the Business and Professional Code regarding legal and agent representation. The Act also specified how student-athlete contracts should be linked to the respective team contracts. Since its implementation, the Act has significantly improved the well-being of student-athletes by enabling them to get monetary compensation for participating in sports competitions because it ruled out the use of sponsorship as a compensation strategy by stating that student scholarships are not a form of compensation and must be revoked because of a student’s athlete’s use of professional representation or compensation. However, there are still concerns about the NCAA’s compliance with the Act because of the NCAA’s constant misinterpretation of the Act’s provision to favor their interests.

Legal Issues in NCAA Payment of College Athletes

The history of the legal issues relating to the NCAA’s compensation of college athletes began in 1984. According to Gilbert (2016), two universities challenged the rules set by the NCAA regarding college football games’ television rights in the NCAA v.Board of Regents case. The universities argued that the NCAA had no reasonable grounds for restraining trade by prohibiting the institutions with membership in the NCAA from selling their television rights unless they aligned their actions with the NCAA’s plan. The court ruled that the NCAA violated the provisions of the Sherman Act by restraining the institutions from selling television rights. According to Hovenkamp (2021), the Sherman Act was introduced by the United States Congress to encourage free competition by prohibiting trusts. The Act’s provisions were applied in the NCAA v.Board of Regents case to support the reasoning that although the NCAA had set television rules, it would be illegal to implement a horizontal restraint of trade among competing teams because league sports create a situation where horizontal restraints on competition are important if the product is not available at all. The court also clarified that joint ventures must comply with antitrust laws. However, it clarified that the NCAA was a unique institution. Therefore, it would be rational to conclude that most of its regulatory controls are a justified way of promoting competition among athletic teams comprising amateur players, thus creating competitiveness because they promote public interest in college sports. Therefore, NCAA rules violated the Sherman Act because they did not serve the NCAA’s focus on maintaining competitive balance among amateur college athletes.

NCAA’s rules concerning the compensation of college athletes were also questioned by Northwestern University football players in 2014. The players created a union that pushed for compensation for using their images, names, and efforts to perform well in football games. The case led to the development of a model allowing students to be compensated for participating in college athletics. Another case that was resolved in 2014 was the O’Bannon vs. NCAA Case. The case was presented by a group of current and former student-athletes due to intellectual property rights, including likeness in video games, images, names, and live game telecasts, among other video footage. They argued that the practices used by the NCAA violated the Sherman Act. The student-athletes defended their argument by focusing on two areas.

One of the areas was the college education market. The college education market was linked to the case because student athletes given scholarships by the NCAA are offered an opportunity to acquire higher education as part of the athletic scholarship package. The package does not allow learning institutions to use the player’s images and names. The group licensing market was linked to the case because it deals with using an athlete’s name on video games and television. The NCAA responded to the claims against them by claiming that their actions were necessary to protect the popularity of college sports and maintain its educational mission (Gilbert, 2016). The NCAA also claimed that it was preserving the amateurism tradition in college sports and had to use the rules to create a balance in competition in college sports; however, the court rejected the claims. The court concluded that the NCAA restrained trade unreasonably. The court also prohibited the NCAA from enforcing any rules that could prevent the member institutions from offering to invest in licensing revenue trust (Gilbert, 2016). However, the NCAA was allowed to enforce rules regarding the self-promotion of athletes, the amount of scholarship the athlete could receive, and eligibility requirements.

Another case that has shaped the NCAA’s payment of college students is the NCAA v.Alston case. According to Balsam (2021), the case focused on the NCAA’s rules that limit student athletes’ compensation. The plaintiffs argued that the limits set by the NCAA on student-athlete compensation were horizontal fixing, including the agreement between competitors to fix prices. The plaintiffs also argued that the rules violated the Sherman Act because they reduced the compensation athletes were entitled to for delivering their services. The NCAA responded to the claims by arguing that the limits were necessary because they upheld the value of amateurism by preserving the demand for college athletics.

The court acknowledged that the NCAA’s actions would be classified under horizontal fixing, which is illegal, but it was necessary because it would preserve consumer demand. The court also argued that the compensation limits upheld the distinction between professional and college sports because student-athletes are not eligible for unlimited payments unrelated to education. However, the court found that the rules exceeded the necessary restriction level required to maintain the pro-competitive distinction between professional and college sports. The court concluded that setting less restrictive rules would align with the NCAA’s limits on most benefits and compensation related to education. The court’s injunction against the rules set by the NCAA to regulate athlete compensation to cap education-related benefits paved the way for more compensation options, such as science equipment, computers, and other items that were not currently accounted for in the calculation of the cost of attendance but were related to pursuing education. Therefore, the NCAA v. Alston case led to reforms in the NCAA compensation program.

Subsequently, the NCAA is currently being criticized for misinterpreting the Act’s provision to favor their interests. The Re: National Collegiate Athletic Association Athletic Grant-in-Aid Cap Antitrust Litigation demonstrates how the NCAA has misinterpreted antitrust provisions in the Sherman Act in the current rules limiting the amount that student-athletes are paid for attending games. In this case, the student-athletes claimed that the NCAA caps the monetary value of the scholarships offered to student-athletes, thus preventing individual colleges and conferences from competing with each other. The student-athletes also argued that the NCAA denies student-athletes the payment they would get if their learning institutions were allowed to compete for their services. The NCAA argued that limiting non-academic and academic benefits is necessary to distinguish between professional and college sports.

In the ruling, the court claimed that the pro-competitive justification provided by the NCAA effectively ensured that student-athletes were not treated as professional athletes and that the limits were necessary in protecting the product offered by the NCAA to consumers. The court also argued that since non-monetary academic benefits are linked and limited to the value of their academic purpose, the non-monetary academic benefits cannot be compared with the salary offered to professional players. The court justified this argument by stating that as long as the limit on academic benefits was the only limit eliminated, the amateur framework would remain the same, and the NCAA would still achieve its goal of maintaining college sports competitiveness. The court also argued that allowing learning institutions to compensate their student-athletes with more academic benefits would only benefit them because the learning institutions participating in NCAA athletics compete to recruit them. Therefore, every school focuses on providing the best academic experience to the student-athletes and gives limited attention to the performance of students who do not participate in sports.

According to Bigham (2021), the timing of the Re: National Collegiate Athletic Association Athletic Grant-in-Aid Cap Antitrust Litigation was perfect because it led to the expansion of the argument made in the O’Bannon vs. NCAA Case, thus changing public opinion about the compensation of student-athletes. Bigham (2021) argues that public opinion is currently focused on increasing the compensation limits for student-athletes, thus making it hard for the NCAA to develop the legitimacy of the pro-competitive purpose they provide for the non-monetary education benefits limitations. States have also reacted to student-athletes complaints about the compensation limits by passing laws or introducing bills that allow student-athletes to get compensation alongside education benefits. Therefore, more reforms in the NCAA rules relating to student-athlete compensation are likely to change as new legal issues arise because of the growing support that student-athletes are getting from the state and the public.

Conclusion

College sports have gained popularity over the past decade because it creates opportunities for students to develop their sports careers and enjoy educational benefits such as scholarships and access to academic resources. The NCAA plays a significant role in ensuring that college athletes are motivated to continue pursuing their education by linking student-athlete compensation to education pursuit. However, various concerns about the NCAA’s interests in student-athletes” compensation have been raised. For instance, in the NCAA v Board of Regents case, the NCAA was accused of restraining trade by prohibiting NCAA member institutions from selling their television rights unless they followed the NCAA’s plan. In the case, the court ruled that the NCAA violated the provisions of the Sherman Act by restraining the institutions from selling television rights. The NCAA was also accused of poorly compensating student-athletes by the Northwestern University football players in 2014. The players accused the NCAA of not compensating them for using their images and names and for their effort in ensuring they performed well in the football games. The case led to the development of a model allowing students to be compensated for participating in college athletics.

Further, in 2021, the NCAA was involved in another litigation regarding its reimbursement rules in the NCAA v.Alston case. The NCAA was accused of using horizontal fixing to set the limits for compensating student-athletes. They responded to the claims by arguing that the limits were necessary because they upheld the value of amateurism by preserving the demand for college athletics. The court ruled that the NCAA rules exceeded the necessary restriction level required to maintain the pro-competitive distinction between professional and college sports. In 2021, the NCAA was accused of capping the monetary value of the scholarships offered to student-athletes, thus preventing individual colleges and conferences from competing with each other and denying student-athletes the payment they would get if their learning institutions were allowed to compete for their services. The court ruled that the pro-competitive justification provided by the NCAA effectively ensured that student-athletes were not treated as professional athletes and that the limits were necessary in protecting the product offered by the NCAA to consumers. The ruling shifted people’s opinion toward increasing student-athlete compensation. It also pushed states to pass laws encouraging high student-athlete compensation to prevent the exploitation of college athletes.

References

Balsam, J. S. (2021). What NCAA v. Alston means for professional sports leagues. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3914964

Bigham, B. (2021). Mo’ money, mo’ problems: An analysis of in re NCAA athletic grant-in-aid cap antitrust litigation [958 f.3d 1239 (9th Cir. 2020).]. Washburn University School of Law. https://www.washburnlaw.edu/publications/wlj/online/volume/60/bigham-mo-money-mo-problems.html

Gilbert, D. A. (2016). Not (just) about the money: Contextualizing the Labor Activism of college football players. American Studies, 55(3), 19–34. https://doi.org/10.1353/ams.2016.0103

Hovenkamp, H. (2021). Monopolizing and the Sherman act. SSRN Electronic Journal. https://doi.org/10.2139/

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