Game Over? NCAA NIL Recruiting Ban Under Attack on Antitrust Grounds

By Caitlin O’Hare*                                                                            Posted: 05/07/2024

On January 31, 2024, the Tennessee and Virginia Attorney Generals filed a lawsuit against the National Collegiate Athletic Association (“NCAA”) alleging the NCAA’s Name, Image, and Likeness (“NIL”) rules violate the Sherman Antitrust Act.[1]  More specifically, the Tennessee and Virginia AGs contend the NCAA’s NIL rules that restrict colleges from using NIL during the recruiting process violate the Sherman Act.[2]  Currently, the NCAA does not permit the use of NIL as an inducement to recruit student-athletes to colleges.[3]  In other words, athletes must commit to a school without any knowledge of the school’s NIL opportunities.[4]  The ban prohibits college coaches from arranging any type of meeting between a prospective college athlete and an NIL entity, such as an NIL collective.[5]  NIL collectives essentially work to pool funds together from “boosters and businesses” to fund student-athlete NIL opportunities.[6]  For example, some NIL collectives are called “marketplace collectives” that seek to create a “meeting place” for college athletes and brands.[7]

The complaint alleges that this restriction on athletes “limits competition” and “artificially decreases” the amount of NIL compensation athletes can obtain.[8]  Furthermore, the NCAA’s restriction prohibits a prospective college athlete’s communication with NIL collectives.[9]  It is contended this limitation on conversations between NIL collectives and prospective college athletes further discourages competition.[10]  On February 23, 2024, a federal judge granted Tennessee and Virginia’s preliminary injunction – enjoining the NCAA from enforcing its NIL recruiting ban.[11]  Therefore, prospective college athletes are currently able to seek out NIL opportunities during the recruiting process.[12]

Relevant Antitrust Law

Under Section 1 of the Sherman Antitrust Act, “contract[s], combination[s] . . . , or conspiracy[ies], in restraint of trade or commerce” are illegal. [13]  Despite its language, Section 1 of the Sherman Act does not invalidate every contract formed.[14]  Rather, the Supreme Court has held only “unreasonable” restraints on trade violate Section 1 of the Sherman Antitrust Act.[15] The Court has applied two categories of analysis to determine whether a contract unreasonably restrains trade in violation of Section 1:  the rule of reason and the per se rule.[16]  A per se rule presumes the restriction on trade to be unreasonable.[17]  A per se rule has been applied in contexts where competitors on the same market levels fix market prices.[18]

The rule of reason is a three-prong burden-shifting test.[19]  First, a plaintiff must show that the defendant’s activity “has had an actual adverse effect on competition as a whole in the relevant market[.]”[20]  The plaintiff must show the defendant’s behavior had “actual detrimental effects” on competition.[21]  If the plaintiff establishes this burden, the burden then shifts to the defendant to show the procompetitive justification for the restraint.[22]

Furthermore, the Supreme Court has recently examined an NCAA regulation in the context of antitrust law.[23]  In NCAA v. Alston, the Court rejected the NCAA’s pro-competitive justification that the NCAA’s restriction preserved amateurism within NCAA sports.[24]  Additionally, in Alston, the Court applied the rule of reason to analyze whether the NCAA’s restriction on education-related compensation violated the Sherman Act.[25]  In rejecting to apply a special standard to NCAA regulations, the Alston Court held the NCAA’s restriction on education-related compensation violated Section 1 of the Sherman Antitrust Act.[26]

Merits of the Case

The question is whether a court would find the NCAA NIL-recruiting ban to violate Section 1 of the Sherman Antitrust Act.[27]  Based on Alston, it seems like a court would look to apply the rule of reason to NCAA regulations.[28]  The rule of reason will require a fact assessment of the NCAA NIL-recruiting ban’s actual effects on the market.[29]  The question is whether the NCAA restriction has actual detrimental effects on the market for student-athlete services.[30]  To meet this burden, there must be indirect or direct evidence of the NIL rule’s detrimental market effect.[31]  The relevant factors for this analysis will include: the NCAA’s relevant business, the condition of the student-athlete services market before and after the NCAA NIL rule was imposed, and the NIL rule’s “history, nature, and effect.”[32]

Impacts of NIL-Recruiting Ban Violates the Sherman Antitrust Act

If a court finds the NIL-recruiting ban to violate the Sherman Antitrust Act, prospective college athletes will have the ability to seek out NIL opportunities before committing to a college.[33]  Such ability would allow prospective college athletes to compare the NIL opportunities they will receive at one school to another school.[34]  This ability to compare NIL opportunities between schools may lead to an increase in competition in the market for student-athlete services.[35]

[1] See Ralph D. Russo & Teresa M. Walker, Tennessee, Virginia AGs Suing NCAA Over NIL-Related Recruiting Rules with Vols Under Investigation, AP (Jan. 31, 2024, 8:12 PM), https://apnews.com/article/tennessee-lawsuit-ncaa-recruiting-violations-nil-df83bc5b39c46476ea1682a96c5d5a2f (explaining lawsuit against NCAA comes during investigation into University of Tennessee’s NIL practices); see also 15 U.S.C. § 1 (2004) (providing Sherman Antitrust Act).

[2] See Complaint at 1, Tenn. v. NCAA, 2024 WL 464164 (E.D. Tenn. 2024) (No. 3:24-CV-33) (challenging NCAA’s NIL-recruiting ban).

[3] See id. at 3 (explaining colleges cannot negotiate NIL contracts with athletes prior to their commitment to school). The NCAA created the NIL recruitment ban because the NCAA wanted athletes to choose schools based on the “best educational opportunities”, as opposed to choosing schools based on what schools would offer the most money.  See Dan Murphy, NCAA Can't Enforce NIL Rules After Judge Grants Injunction, ESPN (Feb. 24, 2024, 4:27 PM), https://www.espn.com/college-sports/story/_/id/39585390/ncaa-enforce-nil-rules-judge-grants-injunction (describing NCAA’s motivation for imposing ban on NIL in recruiting prospective college athletes).

[4] See Complaint at 3, Tenn. v. NCAA, 2024 WL 464164 (describing NCAA’s restrictions on NIL and recruitment).  For example, student athletes cannot be presented with NIL opportunities during the recruitment process and cannot engage in any conversations with NIL Collectives about the schools’ NIL opportunities.  See id. at 8-9. (imposing restrictions on prospective athletes’ ability to figure out how much NIL money a school will be able to offer them if they were to commit to school).

[5] See id. at 10 (explaining limits on college coaches because of NIL recruiting ban). For example, the NCAA recently issued sanctions against Florida State University, after a member of its coaching staff connected a recruit with a booster collective who offered the recruit an NIL deal as an inducement for the athlete to enroll at Florida State.  See Meghan Durham Wright, NIL‑Related Recruiting Violation Occurred in Florida State Football Program, NCAA (Jan. 11, 2024, 7:22 pm), https://www.ncaa.org/news/2024/1/11/media-center-nil-related-recruiting-violation-occurred-in-florida-state-football-program.aspx (demonstrating limits on college coaches from NIL recruiting ban).

[6] See Pete Nakos, What Are NIL Collectives and How Do They Operate?, On3Nil (July 6, 2022) https://www.on3.com/nil/news/what-are-nil-collectives-and-how-do-they-operate/ (defining NIL Collectives).  An NIL Collective is an organization, usually formed by school alumni, that work to collect funds from donors “to help create NIL opportunities” for college athletes.  See id. (explaining that NIL Collectives work to create monetary deals for college athletes).

[7] See id. (providing NIL collective examples).  For example, three main collectives exist:  marketplace collectives, which seek to create a market for athletes to connect with brands and businesses; donor-driven collectives, which pool together booster and donor funds to create NIL deals for athletes; and dual collectives, which are a mix of both the marketplace collective and the donor-driven collective.  See id. (demonstrating different type of NIL Collectives that create NIL opportunities for college athletes).

[8] See Complaint at 3, Tenn. v. NCAA, 2024 WL 464164 (explaining how NCAA NIL-recruiting ban works to unreasonably restrict trade in marketplace).

[9] See id. at 8 (explaining prospective college athletes cannot discuss NIL opportunities with NIL boosters and collectives prior to committing to university). Prospective athletes cannot discuss NIL opportunities with NIL Collectives because to do so would violate the NCAA’s policy that schools cannot use NIL as an inducement for prospective athletes to commit to their schools.  See id. at 8-9 (clarifying that NCAA defines collectives as “boosters” and under NCAA rules conversations with prospective athletes between both collectives and boosters violates NCAA NIL policy).

[10] See Complaint at 9, Tenn. v. NCAA 2024 WL 464164 (explaining restriction on NIL collectives speaking to prospective college athletes creates “information asymmetry” in the market for student athlete services).

[11] See Katie Arcieri, NCAA Banned from Enforcing Name, Image, Likeness Recruiting Rule, BL (Feb. 23, 2024, 5:33 PM), https://news.bloomberglaw.com/antitrust/ncaa-banned-from-enforcing-name-image-likeness-recruiting-rule (reporting on federal district judge’s ruling in favor of Tennessee and Virginia Attorney Generals).  In the federal district judge’s ruling to grant a preliminary injunction against the NCAA, he found the NIL recruitment ban to “likely” violate federal antitrust law and that the NCAA rule “harms student-athletes.”  See Jamiel Lynch, Judge Bars NCAA from Enforcing Parts of Its NIL Policy for Student-Athletes, CNN Bus. (Feb. 23, 2024, 9:03 PM), https://www.cnn.com/2024/02/23/business/ncaa-name-image-likeness-injunction/index.html (describing reasons for enjoining NCAA from enforcing its NIL recruiting ban against prospective college athletes).

[12] See Arcieri, supra note 11 (describing impact of judge granting preliminary injunction against NCAA). The judge’s decision to grant the preliminary injunction against the NCAA will permit prospective college athletes to negotiate NIL deals with college coaches and collectives. See id. (stating prospective college athletes can now seek out NIL deals during recruiting process).  Furthermore, this decision also severely curtails the NCAA’s ability to control how student‑athletes receive pay for their athletic services.  See Lynch, supra note 11 (noting setbacks NCAA faces from district court judge’s ruling).   

[13] See 15 U.S.C.S. § 1 (restricting marketplace behaviors).

[14] See NCAA v. Bd. of Regent, 468 U.S. 85, 98 (1984) (recognizing virtually all contracts are “restraints of trade”).

[15] See id. (limiting application of the Sherman Act to contracts that unreasonably restrain trade).

[16] See Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885-87 (2007) (describing two standards to evaluate restraints on trade under Sherman Antitrust Act).  Some restraints on trade are evaluated under a “per se” unreasonableness standard, while others are evaluated using a rule of reason analysis.  See id. (noting different standards used to analyze antitrust violations),

[17] See United States v. Am. Express Co., 838 F.3d 179, 193-94 (2d Cir. 2016) (citing per se illegal restraints under Sherman Antitrust Act).

[18] See Ariz. v. Maricopa Cnty. Me. Soc’y, 457 U.S. 332, 344-45 (1982) (finding maximum price fixing arrangement between competing doctors violated Section 1 of Sherman Antitrust Act).  In Arizona v. Maricopa Cnty. Med. Soc’y, the Supreme Court found Arizona doctors’ price fixing arrangement to be per se unreasonable.  See id. at 345 (describing dangers associated with price fixing such as unreasonable price fixing and market control power).

[19] See Am. Express Co., 838 F.3d at 193-94 (explaining how to determine if activity is in violation of Sherman Antitrust Act).  Under a rule of reason analysis, the plaintiff must show the defendant’s behavior had an adverse effect on the competition within the defined market such as showing that the defendant’s behavior leads to a decrease in output or quality.  See id. at 194 (stating plaintiff bears first burden in three-prong rule of reason analyses).

[20] See Cap. Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs., 996 F.2d 537, 543 (2d Cir. 1993) (emphasis omitted) (stating mere harm to individual competitor is not sufficient).

[21] See Ohio v. Am. Express Co., 585 U.S. 529, 542 (2018) (explaining actual detrimental effects can be established by showing evidence of increased prices, reduced output or decreased quality within market).

[22] See Am. Express Co., 838 F.3d at 195 (explaining how burden will shift once plaintiff shows there was actual detrimental effect on competition).

[23] See NCAA v. Alston, 594 U.S. 69, 84-85 (2021) (considering whether NCAA’s restrictions on student athletes compensation violated Sherman Antitrust Act).

[24] See id. at 92 (rejecting NCAA’s pro-competitive justification).

[25] See id. at 89-90 (declining to apply special standard to analyze NCAA’s regulations). In Alston, the Court reasoned the NCAA’s restraint was not so obviously unlawful per se nor was NCAA’s restraint not capable of harming competition “that they require little scrutiny.”  See id. at 88 (justifying judiciary’s decision to not foster special anti-trust standard when analyzing the NCAA policies).  Furthermore, the Court recognized the NCAA controls the market for student athlete services.  See id. at 90 (showing NCAA admits its power over the market for collegiate athletic services can harm competition).  

[26] See id. at 107 (affirming district court’s decision).  In applying a rule of reason analysis to NCAA’s restrictions on education-related compensation, the Court found the NCAA rule to unreasonably restrain competition in the market for college athletics services.  See id. (affirming district court’s finding NCAA’s limits on education-related compensation impacted amount of compensation athletes received for their athletics services).

[27] See Complaint at 1, Tenn. v. NCAA, 2024 WL 464164 (challenging NCAA NIL-recruiting ban on antitrust grounds).

[28] See Alston, 594 U.S. at 96-97 (applying rule of reason to NCAA regulation).  In Alston, the Court engaged in a rule of reason analysis by examining whether the plaintiffs showed evidence the NCAA rule adversely affected competition in the market for athletic services.  See id. at 97-98 (examining lower court’s rule of reason steps).  The Court deferred to the district court’s finding that the NCAA’s power to set market wages for student athlete services had anticompetitive effects.  See id. at 100 (holding district court did not offend antitrust principles).

[29] See Ohio, 585 U.S. at 541 (explaining rule of reason approaches require fact assessment by judiciary).

[30] See id. (explaining rule of reason will look to evidence for how restriction affects market).

[31] See id. at 542 (stating evidence of decrease output would show detrimental effect on market).

[32] See State Oil Co. v. Khan, 522 U.S. 3, 10 (1997) (explaining Court must look to numerous factors in rule of reason analysis to determine whether practice in question imposes unreasonable restraint on trade).  Specifically, the Court must consider “specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint's history, nature, and effect.”  See id. (stating which factors are relevant in rule of reason analysis to determine whether behavior in question poses “unreasonable restraint on competition”).  

[33] See Complaint at 8, Tenn. v. NCAA, 2024 WL 464164 (E.D. Tenn. filed Jan. 31, 2024) (explaining NIL recruiting ban hinders prospective college athletes’ ability to discuss NIL opportunities).

[34] See id. at 11 (stating benefits associated with abolishing NIL recruiting ban).  For example, benefits include prospective college athletes being able to compare NIL deals between schools and commit to schools that will afford athletes the greatest NIL money.  See id. (stating if NIL recruiting ban is abolished, colleges could discuss NIL opportunities with prospective athletes during recruiting process which will allow athletes to compare NIL offers between schools).

[35] See id. at 16 (finding prospective college athletes “receive less compensation than they otherwise would receive for the use of their NILs in a competitive marketplace”).