How big is this weeks Supreme Court Ruling on NCAA Student Athlete Income?

NCAA Student Athlete Income

This week has been monumental when it comes to student athlete income. On June 21, 2021, the US Supreme Court made a ruling that can only be described as a victory for the nation’s top college athletes in their ongoing dispute with the NCAA over the limitations the latter has placed on education-related benefits and/or gifts that schools are allowed to provide amateur athletes. The judges unanimously decided that the limitation the NCAA places on the already short list of education-related benefits student-athletes are allowed to receive including graduate school scholarships, musical instruments, computers, and tutorial expenses, was a breach of federal anti-trust laws and should be removed.

The court’s ruling in favor of the athletes is a heavy blow to the NCAA’s current policy of placing strict limitations on student athlete income other than providing gratis tuition and accommodation. It does, however, stop short of allowing schools to pay salaries to college athletes.

The court’s decision on Monday is the latest salvo in a protracted legal war that started in 2014. In that year a number of athletes from college sport’s highest levels – the NCAA’s ‘Football Bowl Subdivision’ and Division I basketball – decided to take the matter of limitations on student athlete’s compensation to the Supreme Court.

During the court proceedings, the NCAA tried to convince the court that it should not be bound by antitrust rules that forbid businesses from working with their competitors to determine workers’ compensation. The implication of the court ruling is that, at least in a situation like the current one, the NCA is bound by the same antitrust laws as the rest of society.

The NCAA argued that it fell outside the scope of antitrust laws because it acted as a ‘joint venture’.

The athletes argued that the NCAA has effectively been running a system that is a perfect example of restraint of competition and that this breached US antitrust legislation. The NCAA responded by arguing that its rules were put in place to preserve amateur college sports and as such were to a large extent not covered by antitrust legislation. Another argument used by the NCAA was that its rules broadened consumer choice by making a distinction between professional sports and college sports.

The NCAA also argued that paying student-athletes large amounts of money would fundamentally change the product that it offered to the public. According to the Association, that product was amateur athletics provided by students who didn’t receive professional salaries. The court didn’t take this argument very seriously.

To make sure there’s no misunderstanding it has to be said at this stage that student-athletes are currently not going without compensation. Many of the top athletes get scholarships that not only cover their tuition but also their accommodation and board. Some players might also get small cash allowances to cover their living expenses and other perks such as medical care for injuries that are related to their sports.

They do, however, not get anywhere near the astronomical salaries paid to the top professional athletes. Plus, even the best student-athlete compensation can only be described as meager when compared to the massive profits they bring in for their universities, the NCAA, and a plethora of broadcasters and merchants who benefit from college sports.

During the 2015/16 academic year, the total revenue generated by Division I and Division I-A football amounted to $4.3 billion. And the broadcast agreement the NCAA currently has for the yearly March Madness basketball tournament alone is worth well over $1bn per year.

A view from one of the Justices…

Furthermore, the Supreme Court’s decision does not prohibit the NCAA from preventing that student-athletes be paid the same as professional athletes. Having said that: in a separate opinion, one member of the Court argued that, if they challenged all of the current NCAA compensation limits in a new court case, student-athletes would be given much wider relief.

Writing on behalf of the court afterward, Justice Neil Gorsuch said that the decision to relax the above-mentioned restrictions would not, as the NCAA argued, blur the lines between professional and college sports, in the process impairing demand among supporters.

Gorsuch added that allowing universities and colleges to pay higher education-related benefits could actually benefit scholastic achievement and provide student-athletes with a level of compensation that is more in line with the value they add to their respective schools.

Judge Kavanaugh, the second judge in the case, wrote after the case that in nearly every other industry in the United States the NCAA’s business model would be downright illegal. Among other things, he added, the market for student-athletes was controlled by the NCAA. It used that position of power to set student-athletes’ remuneration at below-market prices. On top of that, Kavanaugh said, student-athletes currently had no significant ability to negotiate with the NCAA over matters related to their compensation. That is precisely the kind of ‘iron grip over pricing’ that antitrust legislation aimed to prevent, Kavanaugh added.

What money-making opportunities are now open to student-athletes?

The first direct effect of the Court’s unanimous ruling is that the nation’s top student-athletes will no longer be barred from receiving scholarship money that exceeds the cost of their education and accommodation. The court’s decision could, however, have wider implications, and eventually it could lead to student-athletes receiving salaries.

On the 1st of July Alabama and Florida will become the first two US states to break ranks with the NCAA over pay issues when they will start allowing athletes to generate income from their name, image, and likeness. This will include personal appearances, product endorsements, and social media channels. A large number of other states are planning similar moves in the future to make it possible for student-athletes to sign marketing deals, including Mississippi, New Mexico, and Georgia.

How much can top athletes expect to make?

It is not expected that the remuneration of top student-athletes will any time soon match that of professional athletes, at least not before the athletes manage to get a court order that rules all NCAA restrictions on what they are being paid as unlawful.

In the long run, however, this is bound to happen because the current system is simply unsustainable. A 2020 study conducted by the NBER (National Bureau of Economic Research) revealed that only 7% of the $8bn in income generated annually by the NCAA found its way to basketball and football players via living stipends and scholarships.

The researchers estimated that, if football and men’s basketball players in the top conferences should get 50% of annual revenue, every basketball player would get close to $500,000 per year and every football player would earn around $360,000 every year.

The two best-paid football positions (wide receiver and starting quarterback) would earn $1.2 million and $2.4 million, respectively. Under such a 50/50 system starting basketball players can expect to earn anything from $800,000 to $1.2 million a year.

The example of a 50/50 system wasn’t plucked from thin air either. Professional players in, for example, the NBA and the NFL have been receiving 50% of the income generated by their sports activities for many years.

How will this affect college sports in the long term?

The director of Tulane University’s sports law program, professor Gabe Feldman, said it “potentially opens the door for a massive loss and a complete changing of the amateurism model and the limits on compensation to college athletes.”

Former NFL player and top NCAA official Oliver Luck described the court ruling as a victory for students. It opens the door for universities and conferences to pay benefits that, as long as they are linked to education, can not be capped by the NCAA.

He believes that the rules for what can’t and what can be paid will probably be institutional. He quoted the example of a 17-year old start athlete that has to choose between 3 different schools and added that, at least theoretically, these schools might offer this athlete all types of benefits, as long as they are academically related. Examples could include internships, a year abroad, or paying for his or her medical or law school education.

Jeffrey Kessler, the lead counsel for the group of athletes who initiated the case, described the court’s ruling as ‘historic’ and said it might have a significant impact on a large majority of athletes, including those who will never become professional.

He added that he hoped it will open doors to even bigger changes so that the nation could finally have a competitive and just compensation system where these amazing players can enjoy the economic benefits of their labors while at the same time pursuing their educations. He concluded by saying that “Only then will the NCAA truthfully be able to say it is devoted to the welfare of the student-athletes.”

Which sports are most likely to benefit the most and the least?**

At the present moment, the NCAA functions as the hub of the wheel that is student sports. With the massive income it generates, college football is what makes that wheel turn. Of course, without the students who are willing to sacrifice their time and effort, football will also grind to a standstill, and so will the NCAA.

Likely Winners: Football, Football…Football

Monday’s court ruling will make big waves in this pond. The bigger football schools might soon consider leaving the NCAA completely and establishing a new amateur football league that pays players. There have already been discussions around this in recent years and the court’s decision will most probably just speed up the process.

Schools without large football programs are likely to drop the sport altogether. These smaller schools are well aware that the big programs can’t be bothered over what happens to them, and they are also aware that the big guys are considering programs that need a lot of capital. Deploying a football team costs a huge amount of money, and a big majority of the smaller schools simply can’t afford that, particularly if they have to start paying players what’s due to them.

Since the revenue generated by college football has for many years been the driving force behind the nation’s Olympic successes, these teams could well end up requiring huge support from the federal government.

Likely Losers: Soccer, Volleyball, Track & Field

Another victim of the new system could be the US women’s national soccer team where until now money generated by student football was what paid for top-level coaches and state-of-the-art facilities.

The same dynamic is expected to play out with the national volleyball team, numerous US track and field athletes, and also athletes from other disciplines where money from football so far has paid for facilities, coaches, resources, and travel expenses. In the end, the US federal government might be forced to choose whether or not to use tax money to keep Olympic sports afloat, as many other nations do.

Conclusion

For now, Monday’s court ruling might not be truly ground-breaking. The judges, however, clearly indicated that they believed the NCAA model needs to be fixed. And if a system that generates billions of dollars every year should fall apart, those funds will have to flow somewhere else. With such a lot at stake, it’s a safe bet that the current role players are already busy behind the scenes to reshape the future of the industry.

** This section largely reflects the views of Donald H. Yee, a lawyer and partner with Yee & Dubin Sports, which represents professional athletes and coaches. Yee wrote for the Washington Post on 22 June – see first link below.

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