The Supreme Court’s recent ruling against the NCAA and in favor of student-athletes may seem narrow or trivial, but the Court’s acknowledgement of the monopsony issue in labor markets and the anticompetitive effects that can arise from its abuse is significant.
The decision recently rendered by the Supreme Court in NCAA v. Alston, which ruled that the NCAA’s restraint on educational benefits to student-athletes violates antitrust law, may at first glance seem like a minor discussion on the power of a collegiate sports league over the compensation of its student-athletes. However, the rare unanimous Opinion of the Court, delivered by Justice Neil Gorsuch, and the concurring opinion delivered by Justice Brett Kavanaugh, touch on an issue that is becoming increasingly relevant in current antitrust practice and academic discussions: the market power held by employers and their ability to suppress employees’ wages and job placement.
The NCAA and its members have imposed restraints on the compensation of student-athletes, setting limits for compensation related both to athletic performance and education-related benefits. In other words, the NCAA fixed the maximum prices that colleges and universities could pay for their inputs: prices being the scholarships and inputs being the student-athletes. The student-athletes challenged the rules that limited the compensation in exchange for their services in the collegiate championships.
The first step that the Court took to analyze the case was the establishment of monopsony power held by NCAA in the relevant labor market. This was set by the lower courts and remained uncontested by the NCAA. Labelling the NCAA as a monopsonist was fundamental, because only an employer with relevant market power would be able to suppress wages in the relevant labor market and restrict the supply of input for the market.
Monopsony, which can be defined as a monopoly on the buying side, is not a new concept to antitrust law, but it has been gaining traction recently. The studies produced by Ioana Marinescu and Eric Posner show that antitrust cases related to abuse in labor markets are seldom when compared to the same situation in product markets. The NCAA is the sole and only possible employer (buyer) of collegiate student-athletes and can thus exert its market power on the employees. As Justice Gorsuch puts it in the Opinion of the Court: “Unlike customers who would look elsewhere when a small van company raises its prices above market levels, the district court found (and the NCAA does not here contest) that student-athletes have nowhere else to sell their labor.”
In the same sense that a market with a monopolist is not a competitive market, a labor market with only one employer is also not competitive. The monopsonist has not only the ability but also the incentives to suppress wages paid in said labor market. It is significant that the Supreme Court acknowledges this issue in Alston, particularly because it may be an indication of how courts shall treat labor market monopsonists in future cases. It can also serve as incentive to the production of broader legal doctrine on the theme and spark considerations regarding legislative reforms to strengthen labor antitrust, addressing both anticompetitive behavior and mergers that could have negative impacts on labor markets (see the recent policy paper produced by the Thurman Arnold Project at Yale on the matter, as well as Marinescu’s testimony before the House of Representatives).
The Justices dismissed the NCAA’s request to scrutinize the case under the quick look standard and affirmed the lower court’s analysis under the rule of reason, considering the cooperation between schools necessary to establish the collegiate competitions. The rule of reason essentially seeks to establish if the efficiencies and pro-competitive benefits arising from a given conduct are sufficient to offset the anticompetitive effects. On the other hand, the per se rule establishes that some restraints will certainly result in anticompetitive outcomes and won’t create any benefits or procompetitive effects. The quick look standard is a third method developed by courts in which the competitive harm is presumed, but not automatically condemned—the defendant can present competitive justifications for the restraint.
According to Justice Gorsuch, “whether an antitrust violation exists necessarily depends on a careful analysis of market realities. If those market realities change, so may the legal analysis.” The Supreme Court then proceeded to affirm the three-step framework established in American Express and followed by the district court in Alston. This framework asserts that the burden of proof shifts between the parties (being initially held by the plaintiff) to prove substantial anticompetitive effects of the restraints and harm to consumers. In the second step of the framework, the NCAA failed to demonstrate that limitation on schools’ ability to pay education-related expenses would yield any procompetitive benefit to the consumers.
The Court established that the monopsonist bears the burden of proving that wage suppression leads to procompetitive results, or that there was not a substantially less restrictive mean that could yield the same benefits. This is especially relevant because price-fixing arrangements are scrutinized under the per se rule. In Alston, the Court reinforced that some price-fixing arrangements may be reasonable considering the labor market structure and thus should be examined under the rule of reason, as it did in Board of Regents (“Restraints on competition are essential if the product is to be available at all”). Only extraordinary cases will call for the rule of reason analysis, if the market structure requires it, as it happened in Alston.
The above point is particularly important for cases related to wage suppression in markets with a monopsonist player. The NCAA argued that it could not offer broader benefits to its student-athletes because it would drive away customers from its product—the amateurism aspect of collegiate sports is what drives people to gyms and stadiums, and it is what differentiates it from professional sports. In this sense, the suppression in wages and benefits would reflect in efficiencies for the final consumers since it would preserve the amateur aspect of collegiate competitions. According to the Opinion of the Court, “the NCAA’s only remaining defense was that its rules preserve amateurism, which in turn widens consumer choice by providing a unique product – amateur college sports as distinct from professional sports”. The district court found, and the Supreme Court affirmed, that the NCAA could achieve the same procompetitive effects by utilizing substantially less restrictive means.
The argument presented by the NCAA translates into a simple transfer of welfare from employees to consumers. As a matter of fact, Seth Waxman, attorney for the NCAA, affirmed in his oral arguments that “the cost of labor in this unique instance is what is the differentiating feature that provides a procompetitive product.” The revenue generated by the NCAA is exorbitant: the broadcasting deals for March Madness and the college football playoffs are worth $1.1 billion and $470 million, respectively. The student-athletes, on the other hand, are not able to reap better benefits, while coaches and directors are well compensated. As duly noted by Justice Kavanaugh, “the bottom line is that the NCAA and its member colleges are suppressing the pay of student athletes who collectively generate billions of dollars in revenues for colleges every year. Those enormous sums of money flow to seemingly everyone except the student athletes.”
The Supreme Court agreed with the district court on the fact that the NCAA’s restraints on compensation for students-athletes did not generate any benefits on the consumer side that could justify the anticompetitive conduct. Here, the Justices could have gone a step further and affirm that anticompetitive conducts in labor markets cannot be employed to justify any increase in consumer welfare. Efficiencies cannot be the result of anticompetitive strategies, particularly in labor markets. Even if a market is defined by its restrictions, it cannot escape the effects of its restrictive agreements. Justice Kavanaugh was clear: “Businesses like the NCAA cannot avoid the consequences of price-fixing labor by incorporating price-fixed labor into the definition of the product. Or to put it in more doctrinal terms, a monopsony cannot launder its price-fixing of labor calling it product definition.”
Justice Kavanaugh’s concurring opinion will potentially shape future discussions related not only to the NCAA market behavior but also the broader debate related to antitrust and labor markets. Kavanaugh leaves it clear that the remaining compensation rules of the NCAA still raise serious concerns under antitrust laws and that the association would not be able to provide procompetitive justifications to its compensation rules under the rule of reason. Kavanaugh does not sustain the argument related to the amateurism feature of collegiate sports and blatantly affirms that “the NCAA’s business model would be flatly illegal in almost any other industry in America.”
The ruling in Alston is indeed significant, but it is fair to say that the Court’s decision is narrow, because the scope of the case was itself limited. The student-athletes did not ask for a broader relief than what was granted at the district court level, but instead just pleaded the Supreme Court to only affirm the previous judgment. In this sense, the decision was limited to the NCAA compensation practices. Reading from Justice Kavanaugh’s concurring opinion, it seems reasonable to expect that the Court will also slash the remaining the residual compensation rules of the NCAA if a case is brought before it: “There are serious questions whether the NCAA’s remaining compensation rules can pass muster under ordinary rule of reason scrutiny. Under the rule of reason, the NCAA must supply a legally valid procompetitive justification for its remaining compensation rules. As I see it, however, the NCAA may lack such a justification.”
Monopsony power—and its abuse—is an emergent issue in current antitrust law and policy. In his recent book The Profit Paradox, Jan Eeckhout demonstrates how productivity has spiked since the 1980s while wages have staggered. In his recent interview with ProMarket, Eeckhout used the sports industry as an example: salary caps may make competition more balanced, but reduces the salaries of the workers (athletes). The rationale can be applied to the collegiate competitions: to preserve the amateurism and competitiveness aspect of the NCAA, the organization restricts the benefits offered to student-athletes.
The decision in NCAA v. Alston provides relevant insights on the theme of competition in labor markets and may ignite the necessary debates regarding updating antitrust legislation to better address the problem. It is not a trivial task for the legislators, but it is high time antitrust considers the greater effects that market power imposes in a society, and labor markets are only one part of the equation. The antitrust laws must consider a well-functioning labor market as one of its goals, especially protecting it from abuse of monopsony power.
The NCAA may have avoided a slam-dunk in this case, but it will certainly face full court press from student-athletes in the near future.