With NCAA Revenue Sharing Emerges a New Antitrust Challenge

With college sports acting more like a business than ever, how can the NCAA defend its price-fixing regime in court?

Oct 5, 2024; College Station, Texas, USA; Texas A&M Aggies quarterback Conner Weigman (center) celebrates with teammates after the win over Missouri Tigers at Kyle Field. Mandatory Credit: Maria Lysaker-Imagn Images. / Maria Lysaker-Imagn Images

Yesterday, Judge Claudia Wilken of the U.S. District Court for the Northern District of California granted preliminary approval of the House v. NCAA class action settlement agreement to award former college athletes roughly $2,780,000,000 in NIL backpay. Beyond the restitution to the former athletes who were constrained by the NCAA’s unlawful restriction of Name, Image, and Likeness compensation, the settlement looks to add a novel component to the NCAA’s structuring, a NIL-based revenue-sharing system that colleges can opt-in to pay their players. 

While the settlement is pending final approval, yesterday’s ruling is a big step towards bringing revenue sharing to collegiate sports. Logistical details of how exactly athletes will get paid remain uncertain. If approved, the new system will begin on July 1st, and with a final approval hearing scheduled for April 7th, colleges must proactively plan for a rev-share system well before an official decision is rendered. Throughout this hectic process, the revenue-sharing system maintains a glaring legal concern –– price fixing.

According to the settlement’s language, student-athlete payments are capped at roughly 22% of institutional revenue; the first-year cap is expected to be approximately $22,000,000. While enshrining athlete payment directly from colleges is undoubtedly a positive for athlete equity, the rev-share agreement in the settlement violates antitrust law. The Sherman Act, the landmark legislation that curbed monopolies in the United States, prohibits collusory behavior that restrains trade; one such illegal business practice is price-fixing. 

Price fixing can come in many forms; while it is most commonly thought of as companies in the same industry colluding to maintain high prices for consumers on goods, artificial suppression of wages is also a form of price fixing. According to the Federal Trade Commission, price fixing can include “agreements among competing purchasers or competing employers about the prices or wages they will pay.”  The 22% revenue share cap that institutions within the NCAA ranks have conspired to artificially suppress athletes’ wages at each Power Conference school to only a pool of $22,000,000 annually. 

Strategically, one would imagine that the NCAA wants to refrain from returning to court to address these antitrust concerns. The recent Alston v. NCAA decision handed a very small logistical loss, removing the right of the NCAA to cap educationally related benefits to student-athletes, but signaled a very challenging road ahead for any continued litigation. The 9-0 unanimous decision in Alston was very narrow, only focusing on educational benefits; however, strong language in Justice Kavanaugh’s concurrence indicates that a broader review of the NCAA’s compensation restrictions would not lead to favorable results for the longstanding regulators of college sports.  

The concurrence highlighted that the NCAA will no longer receive unique treatment from the court regarding antitrust scrutiny: “After today’s decision, the NCAA’s remaining compensation rules should receive ordinary “rule of reason” scrutiny under the antitrust laws. The Court makes clear that the decades-old “stray comments” about college sports and amateurism made in National Collegiate Athletic Assn. v. Board of Regents of Univ. of Okla., , were dicta and have no bearing on whether the NCAA’s current compensation rules are lawful… 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.”

Most antitrust claims are examined through a Rule of Reason analysis; price-fixing often receives the more challenging per se scrutiny; however, the court has explicitly stated that the NCAA does not fall into this classification. The Rule of Reason approach addresses the anticompetitive effects of business practices and requires defendants to prove that their conduct had pro-competitive justifications. The DOJ outlines the balancing test simply, “if any anticompetitive harm would be outweighed by the practice’s procompetitive effects, the practice is not unlawful.”

Even with an easier standard for review, Kavanaugh believes that the NCAA is unlikely to have adequate justification for maintaining a price-fixing system: “The NCAA acknowledges that it controls the market for college athletes. The NCAA concedes that its compensation rules set the price of student athlete labor at a below-market rate. And the NCAA recognizes that student athletes currently have no meaningful ability to negotiate with the NCAA over the compensation rules. The NCAA nonetheless asserts that its compensation rules are procompetitive because those rules help define the product of college sports. Specifically, the NCAA says that colleges may decline to pay student athletes because the defining feature of college sports, according to the NCAA, is that the student athletes are not paid.”

An astute reader may see this and wonder why a 22% collegiate rev-sharing cap is defined as price fixing in college sports when professional sports leagues all share a similar revenue-sharing agreement. The answer is simple: professional sports leagues operate with players’ unions, and collectively bargained agreements are not subject to antitrust scrutiny. 

The NCAA is unilaterally imposing wage caps on its athletes. Thus, the free market cannot dictate a market rate for its athletes. Thanks to the NBPA, NFLPA, and other athlete unions, by law, management is forced to bargain in good faith with their athletes to determine a mutually agreeable percentage of revenue sharing. Without the ability to sit at the negotiating table with the NCAA, student-athletes are subject to whatever compensation cap the NCAA has determined appropriate, in this instance, 22%. 

This is not to say that 22% is inequitable for student-athletes compared to industry standards. The most prominent sports leagues in America all have rev-share caps that hover around a 50/50 split between management and players; however, when factoring in scholarships and other benefits that college athletes receive, the gap in rev-share percentage closes substantially. The issue in the NCAA’s rev-share agreement isn’t equity; it was unfairly imposed without student-athletes having a seat at the table –– denying the free market from determining the rate. 

Removing the context of a price-fixing agreement from sports, Justice Kavanaugh illustrates how a similar agreement would look in other industries: “All of the restaurants in a region cannot come together to cut cooks’ wages on the theory that “customers prefer” to eat food from low-paid cooks. Law firms cannot conspire to cabin lawyers’ salaries in the name of providing legal services out of a ‘love of the law’…  Price-fixing labor is price-fixing labor. And price-fixing labor is ordinarily a textbook antitrust problem because it extinguishes the free market in which individuals can otherwise obtain fair compensation for their work.”

If the House v. NCAA settlement is approved, it will only reintroduce the NCAA’s price-fixing scheme to the courts. Inevitably, someone will challenge the unilateral revenue caps, and whatever federal judge presides over the case must apply the Alston framework to the analysis. 

In a world of revenue sharing, the pro-competitive justification of amateurism that the NCAA has long relied on is dead. In the new system, athletes will be directly compensated for their labor, like in any other industry. College sports have become more like businesses every day; athletes’ payment furthers that notion. With this change in appearance, antitrust scrutiny for their business of college sports will more closely align with virtually every non-unionized industry. Unilateral caps on wages will not last long.  

The easiest way to escape this perpetual cycle of college sports litigation is through congressional intervention. The legislative branch can levy an antitrust exemption for the NCAA and allow their revenue-sharing cap to be immune from challenge. Democrats are more inclined to follow strict antitrust enforcement and not grant an exemption than their Republican peers, making college sports legislation a partisan issue. With election day less than a month away, how America votes could play a large part in determining the future of college sports.