Student-Athlete Compensation Not a Hail-Mary (But a Reality) After Alston Decision

02 December 2021 Legal News: Sports Publication
Author(s): Byron J. McLain Adam J. Kleinfeld

U.S. Senator Chris Murphy aptly stated: “the college athletic industry is a $15 billion industry, and there are thousands of adults who are getting rich off of that industry.”  Until now, those thousands of adults did not include student-athletes themselves.  However, the future of college athletics, specifically the NCAA amateurism business model that generates significant revenues for the NCAA, conferences, schools, and coaches (i.e., the “adults”), was thrown in flux by the Supreme Court’s recent decision in NCAA v. AlstonAlston effectively exposed NCAA restrictions on student-athlete compensation and education-related benefits to scrutiny under the Sherman Antitrust Act (15 U.S.C. §1) and offered a subliminal critique of all NCAA restrictions.  It also has fueled a resurgence of attacks on various antitrust and labor fronts concerning the NCAA’s amateurism model and the “rights” of college athletes.  Indeed, just three months after Alston, the National Labor Relations Board’s General Counsel, Jennifer Abruzzo, issued Memorandum GC 21-08 citing to Alston, declaring that certain “Players at Academic Institutions” are employees of those institutions, and signaling just how significant—and drastic—the landscape of college sports may change following Alston.

NCAA Reluctantly Adapts to Alston Decision Implications

In the immediate wake of Alston, in which the Court ruled unanimously against the NCAA’s request for “immunity from the normal operation of the antitrust laws,” the NCAA declared independence from name, image, and likeness (“NIL”) restrictions, adopting an interim policy measure that, for the first time, would allow college student-athletes to benefit commercially during their collegiate careers from selling their NIL rights to endorsers without fear of NCAA penalty. And, more recently, on November 8, the NCAA Constitution Committee presented a new 19-page replacement for its current 43-page constitution.  This significantly shorter and streamlined document signals the NCAA’s decision to move away from heavy-handed regulation of college sports and calls for college conferences to establish their own rules and regulations.  In other words, the NCAA’s “interim” policy allowing college athletes to sell and commercially exploit their NIL rights will become “permanent” in some shape or form.

The revised document also attempts to address the criticisms set forth in Alston and further codifies an athletes’ rights to earn money from the use of their NIL.  While Alston was not the impetus for the NCAA’s about-face on NIL or its granular regulation of college-athletes, as the organization was already facing the pressure of dozens of state NIL laws set to take effect, it contributed to a pro-NIL atmosphere that perhaps left the NCAA no choice but to acquiesce. The NCAA also may have seen the NIL writing on the jurisprudential wall after the federal court in House v. NCAA, citing Alston, denied a motion to dismiss by the NCAA and the Power 5 Conferences in this putative class action by college athletes challenging under federal antitrust laws, among other things, the prior rules prohibiting college athletes from licensing or selling their NIL and sharing in group licensing game telecast revenues.

Still, the NCAA’s move to deregulate NIL may prove too little too late, as policy makers and courts alike feel athletes deserve a bigger piece of the pie.  While the NIL development in NCAA policy demonstrates the significant impact Alston has already had on student-athletes’ ability to secure some financial compensation during their careers, other NCAA restrictions remain in place, including rules that specifically prevent schools from directly compensating each student athlete in exchange for athletic performance.  In this regard, Alston seems to be merely the beginning of a domino effect, which could trigger cascading changes for college athletes and their potential economic interests.

Consequently, and as noted, contributing to a deregulatory atmosphere already ripe for NIL reform may not be Alston’s most lasting contribution. Broader changes may still yet come, and it is Justice Kavanaugh’s concurrence in Alston—not Justice Gorsuch’s majority opinion—that might serve as their catalyzing force.

Kavanaugh’s Concurrence Provides Impetus for Change

In Alston, the harshest critique of the restrictions embedded in the NCAA’s economic system came from Justice Kavanaugh, who took an unexpectedly pro-labor stance and held nothing back in authoring his concurrence.  Justice Kavanaugh began by calling the majority opinion an “important and overdue course correction.”  Kavanaugh directly called into question whether “the NCAA’s remaining compensation rules”—namely, those limiting undergraduate athletic scholarships and other compensation related to athletic performance—can withstand scrutiny under federal antitrust laws.  “Nowhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate,” Justice Kavanaugh wrote. “And under ordinary principles of antitrust law, it is not evident why college sports should be any different.”  Justice Kavanaugh’s opinion goes even further and challenges the NCAA’s assertion that amateurism is a “defining feature of college sports.”  Kavanaugh argues that such “innocuous labels” such as amateurism “cannot disguise the reality: The NCAA’s business model would be flatly illegal in almost any other industry in America.”

Critically, Justice Kavanaugh asserts that the NCAA’s arguments that its monopolistic practices were actually pro-competitive and should not be subject to rule-of-reason analysis were “circular and unpersuasive,” since the NCAA simultaneously acknowledged that (i) it controls the market for college athletes, (ii) sets their compensation at below market-rates, yet (iii) contends this compensation regime is pro-competitive because its rules “help define the product of college sports.” However, Kavanaugh did not restrict this analysis to educational benefits; instead he implied that the very basis of amateur inter-collegiate athletics—i.e., unpaid college athletes—constituted a foreseeable antitrust violation. Kavanaugh explained that in any other industry, this type of “price-fixing” would constitute a “textbook antitrust problem” because it precludes laborers (i.e., student-athletes) from participating in the free market to obtain equitable compensation for their work, and the NCAA’s purported desire to preserve the spirit of amateurism cannot stand in the way. “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.’ Hospitals cannot agree to cap nurses’ income in order to create a ‘purer’ form of helping the sick. News organizations cannot join forces to curtail pay to reporters to preserve a ‘tradition’ of public-minded journalism.”  Holding nothing back, Kavanaugh issued a final blow, stating: “Those enormous sums of money flow to seemingly everyone except the student athletes. College presidents, athletic directors, coaches, conference commissioners, and NCAA executives take in six- and seven-figure salaries. Colleges build lavish new facilities. But the student athletes who generate the revenues, many of whom are African American and from lower-income backgrounds, end up with little or nothing.”  In other words, Justice Kavanaugh is warning the NCAA that their entire business model could be invalidated if challenged and that player pay could be just around the corner.

Whether Justice Kavanaugh was playing fair with his judicial reasoning is open to serious question. His concurrence is persuasive, but it cannot and should not obfuscate the fact that his arguments are premised on an overbroad and unestablished factual and legal assumption that certain unspecified college athletes are employees of their schools and that the sports they play qualify as compensable work under some law he does not cite. Nevertheless, Justice Kavanaugh’s concurrence appears to have become the rocket fuel to the relative spark for change created by the Alston majority opinion.

The NLRB and Others Pick up Kavanaugh’s Fumble and Run with It

The General Counsel of the National Labor Relations Board (“NLRB” or “the Board”) and others pounced on Justice Kavanaugh’s recordless labor market analysis as a call to arms. In the aftermath of the Alston decision, the NLRB issued Memorandum GC 21-08, which expressly calls out Justice Kavanaugh’s concurrence as supporting the Board’s position that Division 1 FBS scholarship football players at private colleges should be considered “employees” under the National Labor Relations Act (the “NLRA”). The GC Memorandum states: “Justice Kavanaugh . . . strongly suggested that the NCAA’s remaining compensation rules also violate antitrust laws and questioned ‘whether the NCAA and its member colleges can continue to justify not paying student athletes a fair share’ of the billions of dollars in revenue that they generate.  Moreover, he suggested that one mechanism by which colleges and students could resolve the difficult questions regarding compensation is by ‘engag[ing] in collective bargaining.’”  The memo further advises that misclassifying athletes as “student-athletes” rather than employees and leading them to believe that they are not entitled to the National Labor Relations Act’s protection has a chilling effect on Section 7 activity (i.e., employees’ rights to unionize, to join together to advance their interests as employees, and to refrain from such activity) and, therefore, could alone qualify as an unfair labor practice.  Sure enough, a union representative (not a college athlete) filed with the NLRB an unfair labor practice charge against the NCAA for classifying college athletes as “student athletes.”

GC Memorandum also extends employee status from Division 1 FBS scholarship football player to unspecified athletes and unspecified schools: “Players at Academic Institutions perform services for institutions in return for compensation and subject to their control.  Thus, the broad language of Section 2(3) of the Act, the policies underlying the NLRA, Board law, and the common law fully support the conclusion that certain Players at Academic Institutions are statutory employees, who have the right to act collectively to improve their terms and conditions of employment,” said General Counsel Abruzzo. “My intent in issuing this memo is to help educate the public, especially Players at Academic Institutions, colleges and universities, athletic conferences, and the NCAA, about the legal position that I will be taking regarding employee status and misclassification in appropriate cases.”  

Whether young college athletes will ever take the time and interest in union organizing under federal labor law remains to be seen (and there has been nothing stopping them from attempting to do so since the highly publicized efforts of the Northwestern football team fell short several years ago).  It seems more likely that the NLRB will act where there is no union activity for purposes of eradicating the term “student-athlete” from all NCAA, conference, and school handbooks, manuals, and recruiting materials and seek other ways to charge these “employers” for any other conduct that might conceivably interfere with a college athlete’s rights under the labor law (e.g., challenge a college athlete’s discipline or loss of scholarship as alleged retaliation for engaging in concerted activity under the NLRA).

In truth, however, the GC Memorandum is just a pronouncement of policy and intent from the NLRB’s enforcement arm.  It does not reflect a precedential decision by the NLRB or any federal court determining that college athletes are actually employees under the NLRA.  That has not happened yet, and if it ever does, it will take time.  Nevertheless, the GC Memorandum and the recently filed unfair labor practice charge over “student athlete” nomenclature reflect that efforts to try to get there are well underway.

The NLRB is not alone in using Justice Kavanaugh’s concurrence to bolster claims that college athletes are employees of their schools (and the NCAA on a joint employer theory).  For several years now, plaintiffs’ lawyers have pursued lawsuits claiming that college athletes are employees under the federal Fair Labor Standards Act and related state laws and have been unlawfully denied wages for their work. Historically, these lawsuits have not succeeded (see Dawson v. NCAA (9th Cir. 2017) and Berger v. NCAA, (7th Cir. 2016). Those cases relied in part on the NCAA’s amateurism argument to deny the claims for employee status.  With the Alston Court having rejected that amateurism argument as a complete defense to antitrust claims, it naturally follows (at least for the plaintiffs’ lawyers pursuing these claims) that college athletes should now be proclaimed employees under federal and state wage laws. In a currently pending case, Johnson v. NCAA, a federal district court in Pennsylvania was more than willing to distinguish Berger and Dawson, and cited Alston in doing so, when denying motions to dismiss in a wage law action brought by college athletes against their schools and the NCAA.

Whether college athletes are or should be deemed employees under any of the numerous labor and employment laws in the United States is yet to be determined.  For several years, it was the subject of intense focus and heated debate, which appears to have been reignited by Alston, and more particularly, Justice Kavanaugh’s concurrence.

Legal Implications for Student, Collegiate, and Corporate Interests

With the advent of NIL, the college sports landscape is undergoing dramatic change, but where will it end and what will be the consequences?  It hardly seems that Justice Kavanaugh gave much consideration at all to what it would actually mean to treat college athletes as employees or workers (and perhaps that is and will be a question more appropriately answered by federal and state legislatures, rather than the courts). In a potential world where student-athletes are paid employees, so many questions abound, including around income and employment tax, insurance, and benefits.  Moreover, it is likely that schools would find themselves forced to make uncomfortable decisions borne out of financial stress that could disproportionally impact women’s sports and thereby implicate Title IX of the Civil Rights Act

Title IX created a federally mandated financial parity between men’s and women’s interscholastic athletics, which has led to unprecedented growth of women’s sports since its passage in 1972.  In a world where college athletes are employees, rather than unpaid student-amateurs, however, this progress might be immediately stunted.  The equitable protections for women under Title IX apply only to educational opportunities rather than employment opportunities. It is foreseeable, therefore, that the professionalization of college athletes might spell the end of Title IX in relation to college sports.

In the same vein, revenues generated by men’s college teams significantly eclipse those generated by women’s teams—an unfortunate reality that is not likely to change soon.  Where athletes were unpaid amateurs, this revenue generation gap was less important, but where athletes are paid a salary or wages, it would follow that revenue generating athletes might be paid more. This could trigger gender equity concerns (and potentially litigation) because men and women competing in the same sport will almost inevitably receive different benefits.  Without the protections of Title IX, schools will feel increased financial pressure if they not only are forced to maintain programs that are not “profitable” but also must pay wages to the athletes in those unprofitable programs.  This financial pressure could force some institutions to make economic decisions to eliminate opportunities for the majority of students competing in sports that do not generate revenue—the brunt of which would likely fall upon female athletes.

Indeed, the legal and business issues seem endless in the post-Alston landscape of college sports that involves a parade of identifiable stakeholders beyond student athletes and their schools, including commercial sponsors, player agents, and consultants.  Most or all of them will need legal counsel to navigate not only the existing state NIL laws and policies, but also perhaps other avenues of economic interest that suddenly seem within reach in the aftermath of Alston.