Today’s guest columnist is economist and statistician Ted Tatos.
“Your liberty to swing your fist ends just where my nose begins.”
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Most of us have likely heard that quote in some fashion or another. It’s a concise expression that, although we all enjoy exercising our personal freedoms, preferences and choices, they do not supersede the rights of others not to be injured when we do so. However, one part of civilized society has contravened this maxim: the interpretation of antitrust law when the NCAA is involved.
Antitrust law governs competition among firms, prohibiting cartels and the attempt to monopolize an industry by means other than business acumen. Just as we don’t want athletes to triumph by doping, jumping in a subway while competing in a marathon, or to engage in other sorts of chicanery, we want a fair playing field to allow the most efficient and innovative businesses to win—not the ones that conspire to fix prices or that merge their way to the top of the heap.
Current interpretation of antitrust law reflects defendant-friendly, laissez-faire application of a doctrine known as the consumer welfare standard. This instructs courts to condemn either concerted (e.g., price-fixing cartels) or unilateral (e.g., a monopoly) conduct that results in higher prices or lower output (quantities supplied in the market).
After all, who wants to pay more for the same product? Other things equal, more supply yields lower prices and vice versa. For example, the current global chip shortage has limited new car inventory and pushed up prices.
In theory, consumer welfare seems conceptually reasonable until we remember that, even though we want lower prices, we still need to work to earn the money necessary to buy things, even when they cost less. Anticompetitive employer behavior that reduces wages (no-poach and no-compete agreements, for example) can counteract lower prices; if prices are lower but wages fall below competitive levels, we may be no better off and may even find ourselves in a worse situation. After all, lower prices on a laptop really aren’t much help when you’re struggling to pay rent.
For much of the last four decades, both antitrust law and scholarship have largely ignored anticompetitive effects on workers, choosing to focus only on the “consumer” portion of the human condition. Whether borne of the same arrogance shown by the NCAA’s expert James Heckman, a Nobel laureate economist of the Chicago School (who threw a tantrum after his opinions were rejected in NCAA v. Alston) or some other reason, antitrust economists have largely chosen to ignore labor injuries resulting from anticompetitive conduct.
But a new hope has arisen of late. The opaque scales wrought by the Chicago School have begun to fall from the eyes of antitrust enforcement, allowing it to recognize that anticompetitive conduct that restrains wages deserves the same attention as that which restrains prices. A recent Treasury report, authored in conjunction with the FTC and the DOJ, acknowledged that entrenched market power has reduced wages by approximately 20% below competitive levels.
Which brings us to the NCAA cartel. Legal rulings in O’Bannon v. NCAA and Alston have recognized that the NCAA restricts athlete wages below competitive levels in violation of antitrust laws. In Alston, Judge Milan Smith of the Ninth Circuit called the NCAA’s treatment of athletes “the result of a cartel of buyers acting in concert to artificially depress the price that sellers could otherwise receive for their services. Our antitrust laws were originally meant to prohibit exactly this sort of distortion.” Justice Brett Kavanaugh echoed this same sentiment in his concurrence, explaining, “The bottom line is that the NCAA and its member colleges are suppressing the pay of student athletes who collectively generate billions of dollars in revenues for colleges every year.”
How then is it possible that, after losing in O’Bannon and Alston, the NCAA still maintains its model of amateurism? (Name-image-and-likeness reforms occurred as a result of legislative action, such as California’s SB-206, not the court rulings, although O’Bannon certainly laid the groundwork.) The NCAA still prohibits payment to athletes and opposes calling them employees. Paying athletes for their labor is still considered “cheating” in the upside-down antitrust universe of college sports.
This is where we come back to the “punch in the nose” quote that started this article. The NCAA model currently rests on a single antitrust defense: that its amateurism enhances “consumer demand.” The consumer demand defense, a product of the consumer welfare standard, argues that without the rules against paying players fair wages for their work, some fans would no longer watch, because a taste for athlete exploitation (that’s former NCAA president Walter Byers’ own description) somehow draws these fans to college sports. In antitrust terms, this is called cross-market balancing: using claimed “benefits” to fans to offset harms to the athlete labor, and it has sustained the NCAA ever since the 1984 Supreme Court decision in Board of Regents.
Because the anticompetitive fist with which the NCAA has continuously punched the noses of athlete workers for over half a century may generate some satisfaction to consumers, antitrust laws have permitted “amateurism” to survive. Apparently, the freedoms of some to throw punches does not end where others’ noses begin, after all.
So where does that leave us?
Arguments attempting to offset harms in one market with claimed benefits in another are more common than you think. A ProPublica article cited one antitrust economist who sought to argue that benefits to shareholders in the form of higher stock values offset harms to consumers in the form of higher prices. No-poach cases have observed exactly these sorts of defenses, attempting to offset harms to workers by claiming some benefit to consumers.
A legislative solution prohibiting this sort of “cross-market balancing” would be ideal. In the meantime, action by the Department of Justice against the NCAA would go a long way toward demonstrating antitrust’s intolerance of anticompetitive harm to workers. Last week, during its joint Enforcer’s Summit with the Federal Trade Commission, the DOJ’s antitrust chief, Assistant Attorney General Jonathan Kanter, insisted that the agencies were paying heed to farmers and grocers about competition issues in the agriculture sector. Kanter noted that these individuals “are the experts” whose voices regulators should hear when soliciting information. This is absolutely correct, but when evaluating the conduct of the NCAA either in the literature or in litigation, the voices of athletes have been heard. Myriad documents and articles have reported the long hours athletes spend on their work, the racial dynamics of college sports, and the interracial exploitation of black labor. Athletes have spoken out about their mistreatment and abuse.
Yet none of this could overcome the fact that the Supreme Court precedent permitting claims of “consumer demand” to offset such clear evidence of direct harm to labor has allowed the NCAA model of “amateurism” to survive. Soliciting the voices of workers is admirable, but if current antitrust environment will so justify their injuries on the basis of some consumer preference for athlete exploitation, confidence in the judicial system will suffer.
To be sure, U.S. antitrust regulators face enormous challenges, and both the FTC and DOJ must stretch their limited budgets to cover an array of threats to competition.
Nonetheless, a cartel that has operated in full view since the 1950s to the detriment of workers should not escape regulatory scrutiny, and that scrutiny shouldn’t be limited to amicus briefs, as helpful as those may be. The Supreme Court in Alston seemingly all but invited a broader challenge to the NCAA restraints. If there ever was a time for regulatory agencies to seize the day and directly challenge the NCAA, this is it.
In the meantime, if you think “this is NCAA sports, it doesn’t affect my pay,” think again. Arguments justifying anticompetitive conduct to workers (see, “gig economy”) are very likely coming to a labor market near you, if they have not done so already. And the nose at the end of that fist may be your own.
Tatos is an economist and statistician affiliated with EconONE Research and associate economics editor of the Antitrust Bulletin. In addition to his consulting practice, where he specializes in empirical analysis, Tatos has been an adjunct professor of economics at the University of Utah. This article solely reflects his opinions and not those of EconONE or any other entity.