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The Supreme Court Delivers a Massive Body Blow to NCAA

Twenty-seven years ago, the NCAA successfully argued before the United States Supreme Court and seemingly lost. In a 7-2 decision, the Supreme Court ruled that the NCAA’s broadcast restrictions constituted an illegal horizontal restraint on trade under the Sherman Act.

But what was a loss on actually became a legal boon to the NCAA when the Supreme Court held that that the NCAA needed “ample latitude” to play “a critical role in the maintenance of a revered tradition of amateurism in college sports.”[1] Spinning a loss from seven justices, the NCAA tethered its bylaws as furthering amateurism in collegiate sports; thus, escaping the purview of antitrust review. Twenty-seven years is a long time, and the world is definitely different. As Justice Gorsuch states in his opinion in National Collegiate Athletic Assn v. Shawne Alston, the NCAA weaved the straw of amateurism to create a massive business, whereby the March Madness Tournament generates $1.1 billion in annual televised revenue, and that the Southeastern Conference made more than $409 million in television contracts in 2017. Justice Gorsuch made it clear, the court is not addressing “undergraduate athletic scholarship and other compensation related to athletic performance.”[2] Instead, the court ruled that the NCAA must allow colleges to recruit athletes by offering them additional compensation and benefits if they are connected to education. Consequently, schools may offer compensation beyond the cost of attending college, such as scholarships for graduate school, internships, study abroad programs, and cash awards that do not exceed academic grants of approximately $6,000.

Justice Gorsuch indicated that the NCAA still had ways to control and protect college sports, but restricting compensation tied to education was a violation of the Sherman Act. Additionally, nothing in the ruling required the schools to offer more benefits, they just could not agree to collectively to provide less benefits.

PMG Intrinsic is concerned that there are substantial issues that the court did not fully address. For example, the Supreme Court noted that the NCAA still has authority to determine what kinds of compensation are and aren’t related to an athlete’s education.

The NCAA still has the ability to monitor a school’s or boosters’ attempt to provide extravagant gifts or phony internships for recruitment. As Justice Gorsuch indicated “Nothing stops [the NCAA] from enforcing a ‘no Lamborghini rule.” But what type of professional internship would be considered extravagant? In the case discussed, an exception may swallow the rule. If an athlete is provided an internship at a financial firm with a quid pro quo of a job offer in the future, would that run afoul of the ruling?

Of even more pressing concern to some athletes is that the ruling does not address an athlete’s ability to sigh endorsement deals, referred to as “Name, Image and Likeness” (NIL) benefits. Currently, the NCAA bar athletes from earning money from their NIL. As of the publication of this article, 19 states have passed laws that ban all NIL restrictions. Another 11 states are racing to provide similar bans against the NCAA’s rule.

Justice Kavanaugh’s concurrence may be the final say on the matter of compensation to college athletes; “Traditions alone cannot justify the NCAA’s decision to build a massive money-raising enterprise on the backs of student athletes who are not fairly compensated.” He concludes his concurrence by stating, “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.”[3] With the NCAA reeling from the body blow that the Supreme Court delivered, the floodgate of NIL protections that the states have unleashed, the association may no longer have much of a say in an college athlete’s compensation. However, a paradigm shift envisioned by Justice Kavanaugh may still create a thicket for athletes to wade through. While wallets may be flushed with NIL cash, are they prepared to minimize taxes on such income? Will an NIL be treated as ordinary income taxed in excess of 50% in some states? What if the athlete captures an important moment and sells it as a Non-fungible Token (NFT)? Would that be taxed at lower capital gains rates? The Supreme Court may have opened a world of possibilities for young athletes; PMG Intrinsic will help guide them through it.

[1] National Collegiate Assn v. Board of Regents of Univ. of Okla., 468 U.S. 85, 120 (1984) [2] 594 U.S. _ (2021) (Slip Op at 7). [3] 594 U.S. _ (2021) (Slip Op, Concurrence by J. Kavanaugh at 5).

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