The NCAA has been under immense pressure since California enacted the Fair Pay to Play Act last September. With the act going into effect on Jan. 1, 2023, the NCAA has imposed a deadline to reevaluate its amateurism model and formulate a plan to either ease its absolute restriction of student athletes’ ability to profit from their name, image and likeness, or develop a strategy to strike down the Fair Pay to Play Act.
The NCAA has since indicated that it will be taking the first approach.
On April 29, the NCAA released a statement announcing that the NCAA Board of Governors has taken unprecedented steps to allow college athletes to be compensated for their name, image and likeness. Although no official rules have been established, the NCAA’s highest governing body announced that it supports rule changes to allow student athletes to receive compensation for third-party endorsements both related to and separate from NCAA athletics.
Although those in support of the rule changes should be pleased with the NCAA’s announcement, unavoidable legal issues will likely arise and will need to be swiftly addressed if the NCAA’s 2021 expected implementation date can become a reality.
One likely issue, and a matter the NCAA has already started the process to resolve, is antitrust law implications. Specifically, it is not the authorization of student athletes profiting from their name, image and likeness that implicates antitrust laws. Instead, the issue is with the “guardrails” the NCAA intends to implement to maintain its principles and guidelines. These principles and guidelines include preserving the distinction between collegiate and professional opportunities and maintaining the priorities of education and collegiate experience to provide opportunities for student-athlete success.
While the NCAA has not established what these guardrails will consist of, it is a certainty that the NCAA will impose some restrictions on compensation to student athletes from third-party endorsers. If these regulations are deemed to be unreasonable restraints of trade, the NCAA can be in violation of U.S. antitrust laws.
The Sherman Antitrust Act prohibits every contract, combination, or conspiracy in restraint of trade. 15 U.S.C. Sec. 1. The Federal Trade Commission or the Department of Justice (or both) will be required to establish three elements to succeed on a Sherman Act claim against the NCAA.
First, there must be a conspiracy comprising an agreement or understanding between two or more competitors for the purpose or with the effect of unreasonably restraining trade. Although the NCAA is one organization, it is member-led and composed of more than 1,000 schools. Therefore, these member institutions are agreeing on how all NCAA student athletes will be restricted to profit from their names, images and likenesses all while these institutions actively compete in anything from athletic competition to enrollment.
Regarding whether the restraints are unreasonable, a determination cannot be made until the rules have been decided. When the regulations are established, they will be deemed unreasonable if they have significant anti-competitive effects that outweigh any pro-competitive justifications. This may pose a difficulty to the government as the NCAA’s guiding principles have merit.
Second, it must be established that the defendant knowingly joined the conspiracy. This means the defendant acted voluntarily and intentionally rather than by mistake, accident, or any other innocent reason. Every NCAA member school voluntarily chooses to abide by NCAA regulations in exchange for the privilege to compete in NCAA competition. Therefore, this element would presumably be satisfied.
The third and final element is that the conspiracy substantially affects interstate commerce or occurred within the flow of interstate commerce. This element undoubtedly will be satisfied as member institutions are located throughout the country and potential third-party endorsers will likely go beyond their resident state to secure lucrative endorsement deals. Accordingly, it is plausible that the NCAA regulating how student athletes profit from their names, images and likenesses can be in violation of the Sherman Antitrust Trust Act.
Nonetheless, the NCAA is fully aware of its potential liability by imposing such regulations. Earlier this year, NCAA executives met with the DOJ’s antitrust chief to discuss its plans to change it rules.
Seeking guidance for antitrust compliance may mitigate the risk of liability, but it will not completely eradicate it. In order to truly eliminate the risk of liability, the NCAA would need to obtain an antitrust exemption. However, this is likely an insurmountable task, as only MLB has obtained the exemption and many others, including the NFL, have failed.
Another significant legal issue that will likely arise from the NCAA’s proposed rule change is potential conflicts with the Commerce Clause. Absent federal legislation, state legislators can enact laws in their respective states that legalize how student athletes can profit from their name, image and likeness. Accordingly, 50 states could enact 50 variations of these laws. This lack of uniformity can lead to unfair advantages as states with more player friendly laws will likely succeed in recruiting the top players to compete for schools in their state.
The Commerce Clause grants congress the exclusive right to regulate interstate commerce. With the addition of third-party endorsements, the NCAA will only be increasing the current amount of interstate commerce conducted through its operations. Consequently, the NCAA has been actively lobbying for congress to use its exclusive right and enact legislation that conforms with the NCAA’s position.
Assuming the federal law would not conflict with NCAA regulation, the NCAA would be protected from state legislation that conflicts with its position because the federal law would preempt any state action. Therefore, the NCAA could fluently operate with one uniform rule.
The NCAA has demonstrated that it is willing to compromise on student athlete compensation. This willingness has the potential to pay dividends for the organization as congress may be more inclined to enact federal legislation now that the NCAA has come out to support student compensation.
Nonetheless, the NCAA still has significant work to do if it expects to seamlessly transition to a limited student athlete compensation model in 2021. It appears that the NCAA has been relatively proactive instead of reactive for this longstanding issue. If done correctly, the NCAA can implement an unprecedented feature to collegiate athletics all while avoiding the courtroom.